The euro bounced back earlier this week, recovering from recent weak levels against the US dollar and the Swiss franc. After trading briefly below its 200-day moving average against the dollar at the back end of last week, reaching a three-week low against the dollar, the single currency found support above this key level, now at 1.3087 at the time of writing.
The EUR/USD currency pair hit a low of 1.3055 last week on very thin holiday trading. Euro bears are said to be frustrated by the currency’s firm support and reportedly gave up their positions.
The US dollar was under pressure at the beginning of the week against a basket of currencies. The drop of the greenback against the euro was attributed to a series of stop loss orders triggered around the 1.32 area, in very illiquid trading due to the holiday season.
The dollar fell to a new all-time low against the Swiss franc, down to 0.9436 by the time of writing, while also dropping against its other rivals, mainly the yen, where it hit a 6-1/2-week low on Tuesday, and the Australian dollar, where it fell to a seven-week low.
The single currency similarly fell to fresh all-time lows against the Swiss franc on Thursday last week. The EUR/CHF currency pair hit a low of 1.2438. Since then the euro recovered and reached as high as 1.2699 on Monday.
The euro’s reprieve was not enough though to ease concerns as many investors still see more weakness in the single currency due to persistent worries that Spain and Portugal may need financial aid to finance their debt – especially after Portugal became the latest eurozone member to have its ratings cut. Fitch downgraded the country’s credit rating by one notch to A+ from AA- with a negative outlook.
France, on the other hand, got the nod from Standard & Poor’s, which confirmed its AAA rating.
The EUR/USD is expected to remain confined in the range of 1.31 – 1.33 in the days ahead. There are relatively no drivers at the moment with very little news expected on the eurozone periphery.
The EUR/GBP was restricted within a range of 0.8450 – 0.8550 for most of the past week, also characterised by the festive season trading. The lack of data from the UK did its part in contributing to the low volumes recorded. The single currency did however breach briefly this range against the pound on Tuesday. The euro was up to 0.8593 as the British currency remained hampered by concerns that the harsh austerity measures will dampen an already fragile economy.
In a surprise move, the People’s Bank of China raised its benchmark interest rates by 25bps on Saturday. The move had an adverse reaction on the Australian dollar and commodities initially on Monday trading, but gains for the US dollar were quickly surrendered. Although some traders may believe that the Aussie is becoming immune to Chinese tightening, the marginal losses and the weaker reaction recorded Monday was probably more due to thin end of year trading.
The Aussie initially opened the week at 1.0023 against the greenback, from Friday’s 1.0044 close, and fell to below parity at 0.9988 before recovering to 1.0050 and up to 1.0150 on Tuesday. The Aussie is now set to test its recently set 28-year high against the greenback at 1.0183.
This move by the PBOC signaled Beijing’s commitment to contain inflation which may have triggered a new wave of appreciation by the Chinese currency. The yuan is now a fraction away from its highest level, since its landmark revaluation in 2005.
In other news from Asia, Japanese officials echoed warnings about the strength of the yen. Finance Minister Noda said that Forex moves had been one-sided for the past week, and said the government’s stance to take decisive action on FX when needed still stands.
Economy Minister Banri Kaieda said that the government wants to tackle the yen’s rise. He said he will continue to watch Forex market moves carefully, as sharp rises need to be avoided. He continued saying that the government wants to work as one with the BOJ to deal with the yen’s rise.
I would like to take this opportunity to wish you and all your families a very happy and prosperous new year.
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Upcoming FX Key events:
Today: US PCE, US Michigan Consumer Sentiment, US Durable Goods, US New Home Sales & Canadian GDP.
Tomorrow: German Market Holiday & US Market Holiday.
FX Technical Key points:
EUR/USD is bearish, target 1.2900, key reversal point 1.3500.
EUR/GBP is neutral.
USD/JPY is neutral.
GBP/USD is bearish, target 1.5300, key reversal point 1.6300.
USD/CHF is bearish, target 0.9400, key reversal point 1.0200.
AUD/USD is neutral.
NZD/USD is neutral.
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Mr Muscat is senior trader at RTFX Ltd.