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FOREX: Euro Remains Heavy on Poor Data, Rising Spanish Yields

By , Currency Strategist
24 October 2012 11:11 GMT

ASIA/EUROPE FOREX NEWS WRAP

Risk-appetite was firmer today than it was yesterday, at least in the forex market, with the commodity currencies, the Australian, Canadian, and New Zealand Dollars all outperforming the US Dollar thus far on Wednesday. The primary catalysts of the move higher were some better than expected data out of Australia (3Q CPI) and China (October Manufacturing PMI), adding more evidence to my belief that sentiment about China is too negative in the short-term and data is starting to pick back up.

While high beta currencies are moving higher, elsewhere, risk-correlated assets, such as the S&P 500 futures, the Euro, and peripheral European bond yields, are struggling. As noted in the technical analysis outlook section, the S&P 500 is threatening a major breakdown now amid falling corporate earnings and renewed concern out of Europe. And the concerns over Europe have swung back from the speculative side to the economic side, rooted in weak data.

Earlier today, a few reports came out of Europe that discouraged market participants. Both the Euro-zone PMI Manufacturing and PMI Services readings came in worse than expected, with the readings suggesting that economic activity in the region is at its weakest level since mid-2009. These growth concerns were compounded upon the release of the October German IFO Survey results, which showed that economic activity in Europe’s largest economy is holding at its lowest level since June 2009.

Taking a look at credit, weakness in peripheral European bond markets is underpinning Euro weakness, again. The Italian 2-year note yield has increased to 2.232% (+6.3-bps) while the Spanish 2-year note yield has increased to 2.961% (+1.4-bps). Similarly, the Italian 10-year note yield has increased to 4.869% (+1.5-bps) while the Spanish 10-year note yield has increased to 5.591% (+1.7-bps); higher yields imply lower prices.

RELATIVE PERFORMANCE (versus USD): 10:44 GMT

AUD: +0.59%

GBP:+0.38%

NZD:+0.27%

CAD:+0.15%

JPY:+0.09%

CHF:-0.25%

EUR: -0.35%

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.19% (+0.98% past 5-days)

ECONOMIC CALENDAR

FOREX_-_Euro_Remains_Heavy_on_Poor_Data_Rising_Spanish_Yields_body_Picture_3.png, FOREX: Euro Remains Heavy on Poor Data, Rising Spanish Yields

See the DailyFX Economic Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.

TECHNICAL ANALYSIS OUTLOOK

FOREX_-_Euro_Remains_Heavy_on_Poor_Data_Rising_Spanish_Yields_body_Picture_9.png, FOREX: Euro Remains Heavy on Poor Data, Rising Spanish Yields

EURUSD: The pair has fallen back into significant support, faster than I anticipated. Now testing 1.2940/50 (ascending trendline off of July 24 and August 2 lows) with 4-hour charts looking overextended to the downside, there is scope for a rebound. Resistance comes in at 1.2950/70 (20-EMA, descending trendline off of September 17 and October 5 highs), 1.3070/75, 1.3145, and 1.3165/75. Support comes in at 1.2920/40 (61.8% Fibo on February 2012 high to July 2012 low), and 1.2830/40 (50-EMA, 200-DMA).

FOREX_-_Euro_Remains_Heavy_on_Poor_Data_Rising_Spanish_Yields_body_Picture_2.png, FOREX: Euro Remains Heavy on Poor Data, Rising Spanish Yields

USDJPY: No change from yesterday: “The USDJPY’s run higher has finally stalled, just below the psychologically significant 80.00 figure – a level only to be broken if the uptrend is ‘true.’ Additionally, the daily RSI has entered overbought territory. As such, we’re looking to buy the USDJPY on dips for a move towards 80.60/65 (June highs). Resistance comes in there and just below at 80.00. Support is79.60/70, 79.35/40, 79.20, and 78.40/60.”

FOREX_-_Euro_Remains_Heavy_on_Poor_Data_Rising_Spanish_Yields_body_Picture_10.png, FOREX: Euro Remains Heavy on Poor Data, Rising Spanish Yields

GBPUSD: The pair has retraced all of yesterday’s losses after hitting descending channel support yesterday at 1.5910. Even on this recent breakdown, the daily RSI has held above 40 – a break below would suggest the uptrend is over. Support comes in at 1.5975/80, 1.5910, and 1.5770/85 (late-August swing lows). Resistance comes in at 1.6000/15, 1.6080/1.6100, 1.6170/80 (last week’s highs), 1.6260 (the former April swing highs by close), and 1.6300.

FOREX_-_Euro_Remains_Heavy_on_Poor_Data_Rising_Spanish_Yields_body_Picture_11.png, FOREX: Euro Remains Heavy on Poor Data, Rising Spanish Yields

AUDUSD: Despite the dip lower yesterday, stronger data has helped the pair retrace nearly all of its losses. I’m looking higher now. Resistance is at 1.0330/45 (50-EMA, 200-DMA), 1.0405/25, and 1.0500/15. Support comes in at 1.0270 (ascending trendline off of October 8 and October 15 lows), 1.0230/35, and 1.0200/15.

FOREX_-_Euro_Remains_Heavy_on_Poor_Data_Rising_Spanish_Yields_body_Picture_6.png, FOREX: Euro Remains Heavy on Poor Data, Rising Spanish Yields

SPX500: A short-term top is potentially in place after support at 1420/25 (the 61.8% Fibo retracement on June 2012 low to September 2012 high, ascending trendline off of the June 4 and July 24 lows) broke yesterday following tests on three occasions the past two weeks. Targets near 1355 would come into focus as long as price holds below 1429/32. Support comes in at 1396/1400 (100-DMA) and 1378 (200-DMA). Resistance comes in at 1429/32, 1438 (20-EMA), 1460, 1470, and 1498/1504.

FOREX_-_Euro_Remains_Heavy_on_Poor_Data_Rising_Spanish_Yields_body_Picture_7.png, FOREX: Euro Remains Heavy on Poor Data, Rising Spanish Yields

GOLD: Gold is holding below 1715 (mid-September swing low) but above 1700, and with the daily RSI breaking below 40 (a key level in uptrends), as noted yesterday, our bias [has shifted] from neutral to bearish.” I expect the 1700 area to be defended vigorously, and look to get long as low as 1680. Resistance is 1715, 1735, 1755/58 and 1785/1805. Support is 1690/95, 1680, and 1660/65 (100-DMA, 200-DMA).

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

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24 October 2012 11:11 GMT