EUR/USD trading pushed the price for the pair into the 1.34 region on the last trading day of 2010, however, at the open early last Monday, we saw a correction downwards towards levels seen prior to the December 31 run-up. Given the poor economic docket last Friday, this correction confirmed that Friday’s bullishness was mainly an exaggerated move in a thin volumes market.
The euro remained fairly stable even though it seemed hesitant to resume bullishness during trading last Monday; however it did manage to maintain above the 1.3250. EUR/USD trading only reclaimed 1.34 levels later on Tuesday after year-on-year eurozone inflation came in higher at 2.2 per cent against an expected two per cent and a previous 1.9 per cent; the single currency was also helped by a generally improved risk appetite.
Eurozone PMI manufacturing data released Monday was fairly in line with expectations, but slightly higher than consensus. The German unemployment rate remained at 7.5 per cent, despite a slight unexpected increase in unemployment figures.
Data for US construction spending and ISM manufacturing, released earlier this week were positive and slightly better than expected, this raised expectations for economic growth in the world’s biggest economy. We still have to see if December US Non Farm Payrolls, which are due tomorrow, will sustain this positivity. Non Farm payrolls are expected to reach the 140,000 mark – compared to the previous 39,000.
Traders are expecting support for the US dollar in the near term, as long as economic data releases keep pointing towards an improving situation. This improving streak of data releases should be supportive for the US dollar because the dosage to be used for easing is strongly linked with economic data, and thus improving data should cool fears of more easing from the Federal Reserve.
This stable data from the eurozone and the US triggered risk appetite which was also visible on major equity indices as they traded positively for the former part of the week. On the back of this improved risk appetite the Swissie reversed some of the ‘safe haven’ gains made towards the end of 2010 – mainly led by its safety appeal and low market activity. CHF had hit highs against the US dollar, euro and the GBP towards the end of last year – but investors’ return to the market after the holiday period and the renewed risk appetite led to a temporary correction in the CHF against the USD, euro and the GBP.
While the eurozone concerns are expected to keep overshadowing the euro the CHF will most likely keep enticing investors with its safety appeal. The Swiss CPI is due today, and even though the year-on year reading should remain positive the month-on-month reading is expected to be negative. If figures come out in line with expectations it will most likely dampen expectations of SNB intervention.
Data for the UK PMI manufacturing earlier this week was also positive with an actual reading of 58.30 compared to an expected 57.00 and a previous 58.00. Against the Euro the GBP was trading in the range of 0.8541 – 0.8645 up to the time of writing. During 2010, the GBP gained around 4.47 per cent against the euro. The long term outlook for the pair remains quite neutral, growth outlook for the UK and Europe is quite similar despite inflation in the UK being higher than in Europe.
RTFX Trader Tip’s scenario (for EUR/GBP) for the month sees more sell offs towards the 0.8406-0.8467 area, and that moves to the upside should find resistance at around 0.8740. If the price breaks beyond 0.8842 the pair is expected to be bullish.
Floods in Australia have disrupted farm exports of fruits, vegetables and dairy products and have also hit the nation’s top export sector – the coal mine industry. It has been reported that 35 per cent of the nation’s coal exports has been affected.
Earlier this week the Aussie lost ground to the US dollar, the pair trading in the range of 1.0055-1.0224. The AUD lost support on the back of worries concerning the floods. Helping the US dollar as well was positive data coming out of the United States which helped raise expectations for 2011 economic growth.
Upcoming FX Key events:
Today: Swiss CPI, EZ Retail Sales & German Factory Orders.
Tomorrow: EZ Unemployment Rate, EZ GDP, US Non-Farm Payrolls & US Unemployment Rate
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 0.9200, key reversal point 1.0000.
AUD/USD is bullish, target 1.0300, key reversal point 0.9600.
NZD/USD is neutral.
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Mr Muscat is senior trader at RTFX Ltd.