Responding with a strong resurgence in risk appetite, with global equities and currencies rallying sharply against the buck as strong data out of Europe and solid corporate earnings lifted sentiment.
Relative Performance Against the USD on Friday (as of 09:30GMT) -
Going into the European session markets looked to be slowing in pace as European equities traded flat and US futures pared their gains ahead of the highly anticipated release of the EU bank stress-tests later today. Players were unwilling to enter fresh positions and push the euro and other risky assets past their over-night highs not wanting to get caught out by any nasty surprises in the stress tests. However, in a very similar fashion to yesterday’s price action a string of better than expected data has propelled risk appetite on to new highs. Sterling is outperforming today as it gains 1% against the buck and has retaken the 1.5400 level on the back of mouth-wateringly good GDP data, which showed growth jumping the most in four years as the recovery takes hold.
We continue to recommend that traders proceed with caution as markets do remain quite volatile and unpredictable. All eyes now turn to the highly anticipated European bank stress test results due later today. Although some have attributed the recent gains in the Euro to the fact that the stress tests results have already been priced in as net bullish, there is certainly always the risk for some disappointment or negative reaction to the actual results. Many analysts are concerned that the standards of the tests will be too lax and thereby discredit the tests, which ultimately could once again weigh on the Euro.
Verbal intervention in the yen picked up a gear with Strategy Minister Arai commenting that he is watching yen movements very carefully and thinks the recent yen strength has been caused by funds switching to buying bonds instead of stocks, adding that he is increasingly concerned that yen strength will hurt exporters and the economy. Elsewhere, ECB Trichet was on the front page of the FT calling for spending cuts and tax increases across the industrialised world. Putting himself in direct conflict with the Fed and US administration as whole the ECB president went on to say that policy makers who want to extend stimulus measures are mistaken.
On the data front, French consumer spending and Italian retail sales both disappointed and showed sharp contractions while the German IFO on all three fronts surprised to the topside. UK GDP came in much better than expected and the index of services showed improvement.
Looking ahead, all eyes will be on Canada early in the US session when it releases CPI
(0.9% expected) at 11:00GMT before focus turns back to the bank stress test results
due at 16:00GMT. US equity
futures are pointing higher while commodities
are diverging with gold
trading higher and crude weaker.
: Price action has been extremely choppy and unpredictable since the market topped out by 1.3030 a few days back and it is unclear at this pint in time whether we are on the verge of carving out a medium-term lower top or are prepping for the next upside extension towards the 1.3200 area. Key levels to watch above and below come in by 1.3030 and 1.2730 respectively, and a break on either side will be required to establish a clearer directional bias.
: The latest round of setbacks below 87.00 have been very well supported and daily studies have now turned up from oversold levels with the market looking like it wants to carve out a base. Look for additional gains over the coming sessions back towards 89.15, with a break of this level to likely accelerate gains and force a more material shift in the structure. However, a close back below 86.25 would negate and shift focus back towards the multi-year lows by 84.80.
The latest rally has stalled out ahead of key resistance just over 1.5500 and we look for a medium-term lower top to now carve out by 1.5470 ahead of the next major downside extension below 1.5000. Key short-term support now comes in by 1.5000, and a break below this level will be required to confirm bearish bias and accelerate declines. Back above 1.5400 delays outlook and gives reason for concern.
Any hopes of for a recovery have been put on hold with an earlier close above the 10-Day SMA for the fist time in over a month failing to generate any form of bullish momentum. The market has since broken to fresh multi-week lows below 1.0400 and could now be poised for yet another fresh downside extension towards 1.0100-1.0200 over the coming sessions. A break and close back above 1.0550 would be required to take the immediate pressure off of the downside and force a shift in the structure.
Tokyo names buying Usd/Jpy
, an ACB is on the offer in Eur/Usd
along with a European central bank in reverse diversification. Japanese account selling in Nzd/Usd
a German bank on the bid.
Written by Joel Kruger & Jonathan Granby
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