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Euro Gains Find Fresh Offers Above 1.3100 in Overnight Trade

By Joel Kruger, Technical Strategist
10 April 2012 10:28 GMT

  • Normal market conditions resume following holiday trade
  • Euro supported ahead of 1.3000 for now despite renewed pressure
  • Softer US employment picture opens door again for additional stimulus
  • China trade data produces mixed results; inflation hotter that expected
  • BOJ leaves policy and outlook on hold; more important policy decision at end of month
  • Eurozone Sentix much weaker; structural concerns remain over Spanish recovery
  • EUR/CHF cross remains offered with market still testing SNB resolve
  • German trade balance widens, Japanese machine tool orders rise

Markets look set to return to normal conditions following the Easter holiday weekend and it will be interesting to see if the Euro can hold above a key round figure. In our previous analysis we highlighted the fact that there was some very solid support for the Euro around 1.3000 and the latest setbacks have once again stalled out ahead of the psychological barrier. While our core outlook is still very much Euro bearish, at this point, technically, we would not rule out the possibility for a bit of a bounce back into the 1.3200-1.3300, where a fresh lower top would ultimately be sought out.

Relative performance versus the USD Tuesday (as of 10:10GMT)

JPY +0.30%

CAD -0.19%

EUR -0.30%

AUD -0.34%

CHF -0.35%

GBP -0.40%

NZD -0.56%

Fundamentally, the latest round of minor weakness for the Greenback has unquestionably been driven off of last Friday’s disappointing monthly jobs report, which fell short of expectations and strengthened the case for Fed policy doves looking for additional stimulus from the central bank. Again, the market reaction from Friday which resulted in a sell-off in the buck has hardly been reliable given the holiday trade, and we expect to get a better idea of direction this week.

So far, the buck has managed to find some renewed bids on dips, with questionable data out of China (hard landing back on table with higher inflation readings and concerning components in trade data), softer Eurozone Sentix investor sentiment, widening EMU bond spreads, and fears of further deterioration in the Spanish economy all putting pressure back on risk correlated assets.

Moving on, the Bank of Japan has come out and as widely anticipated, left its call rate and outlook unchanged. Market participants now look ahead to the more interesting BOJ policy decision at the end of the month, which comes on the heels of the next Fed meeting. Elsewhere, we continue to keep a close watch on EUR/CHF, with the cross still unable to establish any upside momentum after recently testing the very well publicized 1.2000 SNB floor.

ECONOMIC CALENDAR

Euro_Gains_Find_Fresh_Offers_Above_1.3100_in_Overnight_Trade_body_Picture_5.png, Euro Gains Find Fresh Offers Above 1.3100 in Overnight Trade

TECHNICAL OUTLOOK

Euro_Gains_Find_Fresh_Offers_Above_1.3100_in_Overnight_Trade_body_eur.png, Euro Gains Find Fresh Offers Above 1.3100 in Overnight Trade

EUR/USD: The latest round of setbacks have stalled ahead of some key multi-week support by 1.3000 and from here there are risks for a shorter-term bounce back towards the 1.3200-1.3300 area, before considering bearish resumption. Ultimately, any rallies towards 1.3300 should be very well capped, while a break and close back under 1.3000, would be required to alleviate topside pressures and accelerate declines.

Euro_Gains_Find_Fresh_Offers_Above_1.3100_in_Overnight_Trade_body_usd.png, Euro Gains Find Fresh Offers Above 1.3100 in Overnight Trade

USD/JPY:The market continues to correct from the recent 2012 highs established at 84.20 several days back, and risks still exist for additional setbacks into the 79.00-80.00 area before considering a bullish resumption. Overall, our outlook is highly constructive and we see the pair in the process of carving a longer-term base ahead of the next major upside extension into the 85.00-90.00 area. We would therefore expect to see the shaping of a fresh medium-term higher low over the coming days. Ultimately, only below 78.00 delays outlook and gives reason for concern.

Euro_Gains_Find_Fresh_Offers_Above_1.3100_in_Overnight_Trade_body_gbp.png, Euro Gains Find Fresh Offers Above 1.3100 in Overnight Trade

GBP/USD: Failure to establish any fresh momentum on the recent break above 1.6000, followed by an aggressive bearish reversal, now suggests that the market could finally be looking to carve a top in favor of a more significant decline over the coming sessions. Look for a break and close below next support at 1.5800 to reaffirm outlook, while back above 1.6065 would be required to negate.

Euro_Gains_Find_Fresh_Offers_Above_1.3100_in_Overnight_Trade_body_usd_1.png, Euro Gains Find Fresh Offers Above 1.3100 in Overnight Trade

USD/CHF: Our core constructive outlook remains well intact with the latest setbacks very well supported by psychological barriers at 0.9000. It now looks as though the market could be looking to carve a fresh higher low, and we will be looking for additional upside back towards the recent range highs at 0.9335 over the coming sessions. Above 0.9335 should accelerate gains towards the 2012 highs by 0.9600 further up. Ultimately, only back under 0.9000 delays and gives reason for pause.

--- Written by Joel Kruger, Technical Currency Strategist

To contact Joel Kruger, email jskruger@dailyfx.com. Follow me on Twitter @JoelKruger

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10 April 2012 10:28 GMT