Euro Finally Outperforms and Tops Leader Board On the Back of Official Plan for Greece
Although, many remain quite skeptical as to the effectiveness of this plan, the EU Summit is now upon us and more color will be disclosed on this plan as the day pushes on. Clearly, the announcement of an official plan has however helped the Euro, with the single currency outperforming across the board on the day. It has been some time since we have seen the Euro at the top of the performance board. Euro gains had initially been held back in Asian trade following the release of an article in the FT titled “Euro in Trouble.” The article concluded that the Euro was still too strong in light of the Greek situation, with the currency only 7% below its trade weighted peak. However, the hesitancy to buy the currency was soon washed away when the details of the Greek plan became clearer.
Relative Performance Versus USD on Friday (As of 9:30GMT) –
1) EURO +0.75%
2) SWISSIE +0.43%
3) KIWI +0.34%
4) YEN +0.23%
5) STERLING +0.22%
6) AUSSIE -0.10%
7) CAD -0.18%
On the data front, NZD GDP came in solid earlier in Asian trade and has helped to keep the currency better bid than its commodity cousins which have been lagging on the day. In the UK, total business investments have come in unchanged from the previous print and have failed to materially factor into price action. Sterling is only marginally higher against the buck on the day, despite some impressive gains in the Euro, with many attributing the relative weakness to cross related buying in Eur/Gbp and a study from the Institute for Fiscal Studies which outlines the scale of the repayment shock facing the UK given the uncomfortably high national debt levels.
Elsewhere, the Australian Dollar has been underperforming on the day even with the earlier upbeat comments out from RBA Stevens. Some heavy cross related demand for a very oversold Eur/Aud market has been attributed to some of the relative Aussie weakness. In Japan, new board member Miyao has been on the wires calling for the maintenance of a very accommodative stance, while in China, the Vice FinMin has been out saying that it would be prudent to keep currencies stable. Finally, Norway’s underperformance remains in the spotlight this week, with the single currency getting hit hard across the board following the decision to leave rates on hold and adopt a less restrictive policy. Norges Bank’s Gjedrem reaffirms this view on Friday after saying that interest rates should not be raised too quickly given the appreciating impact that wider rate differentials have on the NOK.
Looking ahead, US GDP (5.9% expected), and personal consumption (1.7% expected) are due at 12:30GMT, followed by Michigan confidence (73.0 expected) at 13:55GMT. On the official circuit, Fed Bullard and ECB Papademos speak in Washington at 20:00GMT, while Fed Tarullo follows at 22:00GMT. US equity futures and commodity prices are tracking higher.
EUR/USD Has finally broken down below the multi-day consolidation lows (fresh 2010 low) to likely confirm a bearish continuation and open the next major downside extension towards key psychological barriers by 1.3000 over the coming days. Daily studies have had time to unwind from oversold levels following the major drop in January and February, and there is plenty of room for studies to track lower which is supportive of the prospects for continued weakness. In the interim, key short-term resistance comes in by 1.3385, with a break to potentially open 1.3450-1.3500, but only a break back above 1.3570 would ultimately take the immediate pressure off of the downside.
USD/JPY Has been very well supported on dips, and we look for the most recent sharp rebound to open additional upside over the coming days back above critical medium-term resistance at 93.75. The latest impressive rally from Wednesday/Thursday reaffirms our outlook with the market establishing back above the 200-Day SMA for the first time since August 2009. Look for any intraday setbacks to now be well supported in the 91.00-91.50 area.
GBP/USD The market looks to be in the process of a bearish consolidation, with an eventual break below 1.4780 to confirm and open the next major downside extension. The 10-Day SMA has been below the 20-Day SMA for a good portion of 2010, and with the shorter-term SMA now kissing the 20-Day (slightly above), we could once again be on the verge of another major decline. Key short-term resistance comes in by 1.5000, with a break back above this level required to take the immediate pressure off of the downside. Ultimately however, only back above 1.5400 would force a shift in the structure.
USD/CHF The overall structure is constructive with a medium-term higher low now sought out by 1.0500 in favor of the next major upside extension beyond 1.0900 and towards 1.1500 further up. Ultimately, it is the 200-Day SMA that we use as our gauge for direction, with the longer-term SMA, which comes in just under 1.0500, expected to continue to prop setbacks. So long as the market holds above this SMA, we recommend looking for opportunities to be long. Any intraday setbacks should be well supported in the 1.0600-1.0650 area.
Buy side shops on the bid in Usd/Jpy; exporters selling. More hedge fund related interest in cross Yen. European auto manufacturer on the bid in Eur/Usd. German bank buyer of Aud/Usd and Aud/Nzd.
TRADE OF THE DAY
No Trade: Currently holding a number of open positions and no new set-ups presenting right now. We are liking what we are seeing in our Eur/Commodity cross long positions and could be finally seeing a base. Eur/Chf is also looking more promising and trades in the money.
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Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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