Eurozone Economic Uncertainty Back in Focus and Weighing on Currencies
Another very quiet start to the week as the USD remains well bid and continues to consolidate its latest gains against most of the major currencies. Overall, there is an ongoing concern over the outlook for the Eurozone economy, and a persistent threat of contagion from the periphery into the Eurozone core keeps the Euro under pressure. Risk appetite in general seems to be waning and we are also starting to see a pullback in equities and commodities which warns that the current market moves are legitimate and could have a ways to go before pausing.
Relative Performance Versus the USD Monday (as of 11:15GMT)
Greece is very much in focus on Monday with the Eurogroup meeting of finance ministers due up later today. The EU is expected to disclose the details of its Portugal aid package while Greece’s fate in terms of aid is still very much in the air. In European trade on Monday, there wasn’t a whole lot to talk about with Eurozone core CPI coming in on the higher side, while ECB Nowotny was on the wires with hawkish talk.
Looking ahead, US Empire manufacturing, TIC flows and NAHB housing take center stage in the North American session. On the official circuit, Fed Chair Bernanke and Bank of Canada Governor Carney are due out at 13:00GMT and 16:45GMT respectively. US equity futures are tracking lower, while oil has been hit even harder. Meanwhile, gold trades flat to this point.
EUR/USD: The break and weekly close below key medium-term support at 1.4155 in the previous week now suggests that deeper setbacks are ahead with the market contemplating a potential drop below 1.4000. Next key support comes in by 1.4020 (28Mar low), while rallies towards 1.4400-1.4500 should be aggressively sold into. Only a daily close back above 1.4500 would negate. In the interim, we remain on the sidelines and await a clearer entry signal.
USD/JPY: After undergoing a fairly intense drop off from the 85.50 area several days back, the market looks to have finally found some support by the bottom of the daily Ichimoku cloud and could be in the process of carving out some form of a base. Look for setbacks to continue to be well supported in the 80.00’s with only a close back below 79.50 to give reason for concern. From here we see the risks for a fresh upside extension back towards the recent range highs at 85.50 over the coming days.
GBP/USD: The market is starting to give way, with the price now dropping back below the 50-Day SMA to warn of additional declines over the coming sessions. Look for deeper setbacks below 1.6000, with any rallies now expected to be well capped ahead of 1.6400. Ultimately, only back above 1.6520 gives reason for concern.
USD/CHF: Starting to show signs of basing off of the recently established record lows by 0.8550, with the market putting in a solid bullish close for two consecutive weeks and breaking back above the previous weekly high. Next key resistance comes in by 0.9000 and a break above will further confirm recovery structure and open the door for a move back towards a medium-term lower top at 0.9340. Look for any intraday setbacks to be well supported above 0.8700 on a daily close basis. Ultimately, only a daily close back below 0.8700 delays and gives reason for concern.
A US prime name has been an aggressive seller in Eur/USd with good size repeat corporate led buying. Models and real money accounts have led selling in Nzd/Usd. Funds and momentum types lead sales in Cable. Importer bids have been noted in Usd/Jpy.
Written by Joel Kruger, Technical Currency Strategist
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