With the United States on market holiday last Monday, EUR/USD price moves were fairly neutral throughout the day; the pair opened at 1.3692 and closed at 1.3678. Data was supportive for the euro on Monday with PMI numbers from France, Germany and the eurozone in general mostly coming in above expectations, the same happened for the IFO Business Climate Index and the IFO expectations.
However, the better data did not provide the required breakthrough for the euro to head higher on Monday. Tuesday morning the US dollar was up a total of 3.27 per cent during early Asian trading when seen against the major counterparts. Still during early Asian trading the euro was down 1.89 per cent against the majors. Risk aversion took the lead earlier this week and it was visible in the prices dealt for the traditional safe havens; in total against the major counterparts – the USD was up 2.73 per cent, the CHF was up 7.73 per cent, the JPY was up 2.13 per cent and Gold was up 1.67 per cent – for the former part of this week.
The continued unrest stemming from the Middle East and North Africa has been conducive to risk aversion at week start. Libya attracted most of the headlines due to it being an oil-producing country; it is an OPEC member and contributes to a reported two per cent of global oil supply. The fears that the situation in Libya could leave an effect on global output sent oil prices to two-and-a-half year highs.
Also weighing on the single currency was some political uncertainty with news of Germany’s ruling party suffering a regional election defeat and issues revolving around the Irish general election (due tomorrow). In Ireland a major contending party has been echoing that it will try to renegotiate the bail-out terms.
The weekly RTFX Trader Tip outlook for EUR/USD – to the upside sees resistance at 1.3791/1.3897, and to the downside support lies at 1.3504/1.3323.
The British pound was down 0.74 per cent in total against the major counterparts as support fled to the “safer” currencies. The GBP was weaker than most of the major counterparts, only making gains against the Aussie and New Zealand dollar. The biggest losses for the British pound were made against the Swiss Franc – given the latter’s stronger safe-haven appeal.
When seen against the euro, the British pound was relatively neutral mostly trading sideways through the Monday session. Data released Tuesday morning however favoured the GBP, as data for Public Sector Net Cash Requirement (PSNCR) and Public Sector Net Borrowing (PSNB) fell significantly more than had been expected.
Yet comments from Yves Mersch, a member of the European Central Bank council, suggesting that ECB officials could be taking a tougher stance against inflation in next week’s ECB monthly meeting, gave euro the lead against the GBP, at least up to the time of writing.
The weekly RTFX Trader Tip outlook for EUR/GBP – to the upside sees resistance at 0.8471/0.8513, and to the downside support lies at 0.8372/0.8315.
Earlier this week Moody’s credit rating agency lowered the outlook for Japan’s sovereign rating from stable to negative. The news sent the USD/JPY currency pair higher – but the strong gains made by the JPY on the NZD, Aussie, and GBP left the JPY in the positive territory.
News of a strong earthquake hitting parts of New Zealand last Tuesday led to NZD suffering significant daily losses against all of the major counterparts. The Earthquake hit Christchurch – one of the country’s biggest cities. It has been reported that Forex investors were pricing in the possibility of an interest-rate cut. The kiwi was down 1.88 per cent against the euro and similarly against the US dollar.
Gold traded in the range of 1390.05-1410.90 for the former part of this week, aided mostly by the current tensions surrounding economic markets. A significant break above 1415.82 could be indicative of more bullishness. On the charts, given the relatively neutral indications on the Relative Strength Index (RSI) for the one-hourly, four-hourly and the daily charts, the precious metal will most likely remain range bound for the rest of the week.
Upcoming FX Key events:
Today: German GDP, US Durable Goods Orders & US New Home Sales.
Tomorrow: UK GDP, US GDP Preliminary, US PCE & US Michigan Sentiment Final.
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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Mr Muscat is senior trader at RTFX Ltd.