Euro Goes Nowhere as Spanish Auction Fails to Inspire Fresh Volatility
- Spanish auction results slightly exceed expectation
- Euro holds within tight intraday range
- Aussie data continues to show signs of weakness
- Keeping an eye on Swiss Franc
- Bank of Japan committed to monetary easing
The highly anticipated event risk for the day in the form of the Spanish auction has come and gone, and following some initial digestion, markets seems to be no closer to establishing any clear directional bias. The Euro has been locked in a very tight but choppy intraday range mostly defined between 1.3100 and 1.3150. The Spanish auction produced decent results, with a good bid-to-cover and higher yields as was expected. At the end of the day, with all of the hype, the overnight session was rather uneventful and the story is the same as it has been over the past few days.
Relative performance versus the USD Thursday (as of 11:05GMT)
The Euro remains locked within a broader 1.2995-1.3215 range, and it will take a clear break on either side to get things going. US equity futures are however well bid in response, and it will be interesting to see how things play out into the New York close on Thursday. Overall, we still see risks for the Euro and risk correlated assets tilted to the downside, but wonder whether we might see a bit more of a short squeeze (currencies and equities higher, USD lower), before the buck regains its footing.
Elsewhere, it is worth keeping an eye on the EUR/CHF cross rate after SNB Jordan was finally announced as central bank chief on Wednesday. The central bank is committed to capping any additional Franc gains, and should we see any pickup in risk off trade, it could once again force the SNB into action, with the cross rallying towards 1.2100. The key level to watch, in our opinion, comes in at 1.2050, with a break required to accelerate gains. Other recent developments include more weakness in Australian data as highlighted by the latest NAB business confidence reading, and comments from the Bank of Japan Governor who said the central bank is committed to monetary easing.
EUR/USD: The latest round of setbacks have stalled ahead of some key multi-week support by 1.3000 and from here we still can not rule out risks for additional consolidation above 1.3000, before considering bearish resumption. Ultimately, any rallies towards 1.3300 should be well capped, while a break and daily close back under 1.3000 would accelerate declines to the early 2012 lows at 1.2660.
USD/JPY: The latest pullback from the 2012, 84.20 highs was viewed as corrective and it looks as though the market has finally found some solid support ahead of 80.00. The setbacks have stalled by the top of the daily and weekly Ichimoku clouds and we look for the formation of a fresh medium-term higher low somewhere around 80.00 ahead of the next major upside extension back towards and eventually through 84.20. Overall, this is a market that has undergone a major structural shift in recent months and we now see the pair in the early stages of a longer-term up-trend. Ultimately, only a weekly close back under 78.00 would negate.
GBP/USD: The recent break back above 1.6000 now opens the door for fresh upside towards the October 2011 peak at 1.6150. However, any additional gains beyond 1.6150 should prove hard to come by, and we once again see risks for a bearish reversal in favor of renewed weakness back down towards key support by 1.5800. A break and close below 1.5800 will then accelerate declines. Ultimately, only a weekly close above 1.6150 would negate underlying bearish bias.
USD/CHF: Our core constructive outlook remains well intact, with the latest setbacks very well supported by psychological barriers at 0.9000. It now seems as though the market could be looking to carve a fresh higher low, and we will be watching for additional upside back towards the recent range highs at 0.9335 over the coming sessions. Above 0.9335 should accelerate gains towards the 2012 highs by 0.9600 further up. Ultimately, only back under 0.9000 delays and gives reason for pause.
--- Written by Joel Kruger, Technical Currency Strategist
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