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Euro Shows No Signs of Let Up Despite Weaker Data

Euro Shows No Signs of Let Up Despite Weaker Data

2010-07-16 09:09:00
Joel Kruger, Technical Strategist
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 MORNING SLICES

FUNDYS
 
The Greenback has fallen way out of favor of late and we have been hearing that the latest price action has been attributed to longer-term accounts booking profit on long USD positions, and model funds establishing fresh Euro longs. 
 
Relative Performance Versus USD on Thursday (As of 9:00GMT) – 

1) YEN        +0.38% 
2) EURO -0.01%
3) SWISSIE         -0.16% 
4) STERLING -0.26%
5) CAD         -0.53%
6) AUSSIE -0.90%
7) KIWI -1.90%
 
Fundamentally, the cooling off of sovereign debt concerns in Europe has also played a large role in the Euro’s rebound, while a downbeat Fed, weaker empire state manufacturing, disappointing Philly Fed, and softer headline PPI have all take away from any appeal the USD might have. It appears that so long as there is little hope for interest rates to move higher in the US, and so long as data continues to show weakness, there is very little reason for market participants to want to be buying the buck, even despite very stretched technical studies. 
 
On the data front, Eurozone trade balance was the only key release in overnight trade, with the series coming in much softer than expected while also showing some downward revisions to the previous print. Finally, while most of the major currencies were locked in some tight consolidation overnight, the commodity currencies continued to lag and underperform with Kiwi getting hit the hardest, on the back of softer than expected CPI over-night lowering expectations for a rate hike by the RBNZ at its next meeting in two weeks. 
 
Looking ahead, US CPI (0.0% expected) and Canada leading indicators are due at 12:30GMT, followed by TIC flows at 13:00GMT and University of Michigan confidence (74.0 expected) at 13:55GMT.  US equity futures and commodities are all tracking moderately lower ahead of the North American open.
 
TECHS
 
EUR/USD:  The market continues to surge and has officially closed above the 100-Day SMA for the first time since December of 2009, to potentially warn of a material shift in the construct. Next key levels to watch above come in by 1.3000 and the 1.3090 further up, and given the intensity of the move and close above the 100-Day, we can not rule out the possibility for additional upside towards these levels over the coming sessions. There is no decent support until 1.2700, and a break and close back below this level will be required at a minimum to take the pressure off of the topside.  
 
USD/JPY: Thursday’s sharp pullbacks have put a serious dent in recovery prospects and the market now looks like it could be attempting to establish below key barriers at 87.00. However, we will retain our bullish bias, unless we see a daily close below 87.00.   A break back above 88.50 will now be required to get things moving back to the upside. 
 
GBP/USD: Any attempts for a bearish resumption have been put on hold with the market being well supported on dips into the 1.5000 area which coincides with both the 20/100-Day SMAs. Nevertheless, we retain a bearish outlook and look for any additional rallies to be capped ahead of 1.5500 on a close basis. Key support now comes in by 1.5235, and a break and close back below this level will help to relieve topside pressures.  
 
USD/CHF: The market continues to ignore severely oversold technical studies and has dropped to yet another multi-week low below 1.0435. This now opens the door for additional weakness and puts any hopes of recovery on hold. Next key support comes in by 1.0130, which guards against critical psychological barriers by 1.0000. For now bulls should only get optimistic on a break back above 1.0550. 
 
 
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com 
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