The buck is going to need more than just one day of strength to convince the markets that it is legitimately attempting to form a bottom. At this point however, the strong currency buying has once again emerged and the greenback is lower heading into Europe. The fact the Euro was unable to clear 1.5000 barriers on Tuesday, still leaves an excuse for the market to race higher, to officially clear this level. For now, key support in Eur/Usd comes in by 1.4830, with a break below required to ultimately shift the short-term structure. Until then, the bulls remain firmly in control. On Tuesday, we saw a barrage of USD supportive comments from officials across the globe, but as to be expected, the market was not influenced significantly by the talk.
However, there have been some interesting developments that could be more than just talk. Brazil has come out imposing capital flow controls to stem the appreciation of the Real, while the Bank of Canada has come out, following yesterday’s unched decision, expressing its concerns over the appreciation in the Loonie, while also conceding that they are open to intervention. Meanwhile, North and South Eastern Asian countries, along with Russia, have been seen actively buying USDs to slow the appreciation in their currencies. Additionally, the UK and Sweden have also opted for “stealth devaluations.” Even in the Eurozone, we have been starting to hear some expressed concern, with France saying that the USD weakness can no longer be tolerated.
Overnight, global equities have managed to rebound a bit on the back of the solid US earnings after the bell on Tuesday. In New Zealand, RBNZ Bollard has helped to rally Kiwi after saying that a high NZD is not necessarily an obstacle to raising the cash rate. In Australia, some stronger second tier data has helped to bolster the very well bid Aussie. White House Romer has been on the wires supporting the current stimulus while also saying that the economy is still under severe stress. Elsewhere, Fed Plosser was out with some hawkish comments, but failed to have any noticeable influence on price action. Sterling has been an outperformer on the session, with BoE King comments helping. The central banker has sad that he is not sure how long low rates will continue, and that rates would return to normal levels in some time. Looking ahead, the European calendar is unusually light, with the only key release coming from the BoE Minutes due at 8:30GMT.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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