Wednesday of last week the EUR/USD pair traded new highs of 1.3538 after having breached the 1.3417 - 1.3498 region. The move higher is worth pointing out because the mentioned region had provided significant resistance to the EUR/USD pair since the end of November 2011.
After these new highs the trend remained bullish, but made new lows of 1.3396 last Thursday, January 20, motivated by profit taking. Nevertheless the EUR/USD remained bullish and closed the week at 1.3614.
Over the weekend, comments by European officials and German Finance Minister Wolfgang Schäuble led investors to think that restructuring of the EFSF and Germany’s eagerness for a “complete package” could be finalised in the next weeks. This kept lending support for the euro in the earlier part of this week, making highs of 1.3687 up to the time of writing.
Moreover comments from European Central Bank president Jean-Claude Trichet prior to this week’s open, suggesting that monetary policy and emergency measures being taken were independent of each other, gave rise to speculation by Forex investors that there was the possibility of having ECB raising interest rates on one side while on the other hand the emergency measures were still in place.
The recent rise of the euro is also attributed to the ECB’s tough stance on inflation while the Fed in contrast remains dovish. On Tuesday morning the European Financial Stability Facility’s initial debt issue was well bid for. EFSF debt is AAA-rated and is guaranteed by eurozone member states and is intended to help bail out those EZ nations who have difficulties financing themselves.
This event was seen as supportive for the single currency and some analysts were saying that this could possibly expose the next resistance level seen at 1.3786 ( November 22 highs).
RTFX Trader TIP (EUR/USD) sees resistance for the week lying at 1.3744/1.3874 while to the downside support lies at 1.3365/1.3115. The weekly scenario favours a corrective dip to 1.3365 while below 1.3744, a move above 1.3874 (the second resistance for the week) would cancel the anticipated dip.
In the United Kingdom preliminary GDP figures for Q4 published Tuesday morning showed a surprise contraction, with the actual figure coming out at -0.5 per cent against the expected 0.5 per cent and a previous 0.7 per cent. The weak figure seems to find its roots in the services sector as the manufacturing sector kept growing in the fourth quarter.
This weaker estimate sheds doubts on the possibility of the BoE raising interest rates, as was being speculated earlier. With the UK’s austerity programme and tax rises for 2011 consumer demand is expected to continue to be hit – and previous criticism that too ambitious austerity could lead to a double-dip recession might be regaining some ground again.
Other figures from the UK, released Tuesday as well, showed a decline in Public Sector Net Borrowing (PSNB) down to £15.305 billion from a previous £22.77 billion and on the other hand an increase in the Public Sector Net Cash Requirement (PSNCR)from a previous £16.81 billion to £25.507 billion.
In the earlier part of this week the GBP was down 1.44 per cent against the US dollar and was losing 1.41 per cent against the euro since the opening of trade this week. For the month the EUR/GBP was rather neutral paring the previous gains made since January 3. For the month, the British pound was still 1.27 per cent higher against the US dollar although it was retracing part of the previous gains made since January 3.
At the time of writing gold was trading in the range of 1322.80-1338.70, having breached the 100-day moving average currently at 1354.30; it has been losing steam after January 3 highs (which are the highs for the year, up till now) of 1424 USD. Trading for gold has so far been close to the RTFX Trader Tip’s scenario for the month that projected a correction down to the 1332.13 region.
The precious metal has gone below the second support for the month at 1332.13 in line with the recent bearish trend. But beware that the daily time frame Relative Strength Index (RSI ) (an overbought/oversold indicator) for gold is approaching oversold territory, and the weekly time frame RSI for gold is rather neutral. This could imply that selling pressure could be easing and we might be in for a small correction upwards in the coming days.
Upcoming FX Key events:
Today: EZ Confidence, US Pending Home Sales & US Durable Goods Orders.
Tomorrow: Swiss KOF Indicator, US GDP, US Core PCE & US Michigan Sentiment.
FX Technical Key points:
EUR/USD is neutral.
EUR/GBP is neutral.
USD/JPY is neutral.
GBP/USD is neutral.
USD/CHF is bearish, target 0.9200, key reversal point 1.0000.
AUD/USD is bullish, target 1.0300, key reversal point 0.9500.
NZD/USD is neutral.
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This information shall not be deemed to constitute advice and should not be relied on as such to enter into a transaction or for any investment decision. Any opinions expressed in this document represent the views of RTFX at the time of preparation.
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Mr Muscat is senior trader at RTFX Ltd.