Elevated Geopolitical Tensions Help US Dollar Retain Some Bids
The US Dollar has managed to find some relief into European trade on the holiday Monday (US will be closed for President’s Day) after the Greenback had been hit hard against the Euro on Friday following some ultra hawkish comments from ECB Bini Smaghi who said that the European Central Bank would be ready to look to raise rates should price pressure mount. The escalation of geopolitical tensions in North Africa and the Middle East on the back of comments from Libyan Gaddafi’s son who warned of the potential for a civil war, have helped to flow some funds back into the buck, while the latest vote in the US House to cut spending, and German Chancellor Merkel’s CDU heavy defeat in Hamburg over the weekend have also not helped risk appetite.
Elsewhere, the G20 meeting over the weekend failed to produce any material market moving results, and this has come as no surprise with the group having a reliable track record of failing to move markets. In short, the G20 have agreed on the principle of tracking indicators of imbalances, and this is way too vague and broad to create any clear short-term result. In fact, the process looks like it will be very long and drawn out with much of the subject matter open to interpretation. Click here for full communiqué.
On the data front, things were relatively quiet in Asia with UK Rightmove house prices coming in generally better than previous, while New Zealand credit card spending was also improved. Japanese all industry activity failed to produce any market moving reaction, but China HSBC flash PMIs were not to be ignored, with the reading coming in softer than expected and helping to perpetuate fears of further slowing within the Chinese economy.
Looking ahead, Swiss money supply is due at 8:00GMT, followed by German services PMI (60.2 expected), German manufacturing PMI (60.3 expected) at 8:30GMT. Eurozone composite PMI (56.9 expected), manufacturing PMI (57.2 expected) and services PMI (55.9 expected) are then out at 9:00GMT, along with German IFO readings. The calendar for the remainder of the day is empty as US traders enjoy the long holiday weekend. US commodity prices are well bid led by oil (geopolitical fears).
EUR/USD:The market looks to be in the process of seeking out a fresh lower top below 1.3745 ahead of the next downside extension towards the measured move objective off of a head & shoulders top formation which comes in by 1.3300. Look for confirmation of a fresh lower top on a break back below 1.3425. As such, we like the idea of fading the most recent rally above 1.3700, with only a break and close back above 1.3745 negating short-term outlook and giving reason for pause.
USD/JPY: The market continues to remain extremely well bid, with the latest surge back above 83.00 really encouraging longer-term recovery prospects and opening the door for a potential break of key topside resistance by 84.50 over the coming days. Longer-term cyclical studies certainly suggest that the market could be poised for a major bullish reversal and we would look for a break and weekly close back above 84.50 to help confirm outlook. Any dips from here should be well supported ahead of 82.50, while only a break and close back below 82.00 would concern.
GBP/USD: The market largely remains locked in some consolidation after stalling out by key resistance at 1.6300 several days back. From here, it is difficult to establish a clear directional bias and we will need to see a sustained break above 1.6300 or back below 1.5960 for additional clarity. In the interim, we remain sidelined.
USD/CHF: The market has been in the process of pulling back after stalling out ahead of key short-term resistance by 0.9785 in the previous week. Still we see any additional declines well propped above 0.9425 (minor 78.6% fib retrace) on a close basis and look for the formation of a fresh higher low ahead of the next major upside extension back through 0.9785 and towards more critical resistance by 1.0070 further up. Only a close below 0.9425 will give reason for concern.
Written by Joel Kruger, Technical Currency Strategist
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