Price Action Remains Subdued With US Out; Libyan Tensions in Focus
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.
Relative Performance Versus USD Monday (As of 12:15GMT)
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, German PMIs came in mixed with manufacturing PMI beating expectations while services PMI was softer than forecast. However, German IFOs all came in stronger than expected with Expectations and Business Climate both hitting record highs. Euro-zone PMIs came in firmer than expected as the economic recovery in the euro-region continues to gain traction. But, despite the heavy load of tier one data, price action remained subdued as the US holiday kept many investors sidelined.
Looking ahead, the North American economic calendar is empty so traders are likely to remain focused on global macro developments and spreading tensions in the Middle East and North Africa. US futures are pointing lower while commodities are trading higher, with oil up a whopping 3.6% on the back of supply concerns amid turmoil in Libya. Gold is also well bid on safe have plays.
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.
Repeat selling by a Middle Eastern central bank after IFO release to keep ranges in Eur/Usd. Local banks and corporate types have been bidding in Aud/Usd, offers are noted by US funds and ACBs around 1.0150-70. A semi-official name on the bid in Usd/Jpy.
Written by Joel Kruger, Technical Currency Strategist
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