NEWS / Indicators

Is the Euro ready to take off again?

By Marc Spaelti - ACM Senior Trader Yesterdays News and Events: Markets in Europe on Monday were as quiet as they can get, EURUSD stuck to a tiny range near the 1.2960 key resistance, but it had no success in closing the day above that with a late New York sell-off that knocked the pair to 1.2885. Cable looked weak yesterday, trading down 1-cent from the 1.8860 top during the quiet European session before it fell to a 1.8695 low overnight. With the ECB rate hike around the corner, we witness an ongoing interest by investors to change GBP for EUR. Over the past 3 weeks, the EURGBP cross has gained 2% to come close to a medium-term resistance at 0.6900. While Cable looks least bullish of the major currencies, USDCHF seems willing to pressure for a break of the 1.20 key area. Last night the Dollar only rallied 70pips to top at 1.2100 before falling back to the 1.2040 support level, a daily close beyond 1.20 is a bearish signal. The Central Bank conference between FED, ECB and BOJ yielded little news, as the three mostly discussed long-term issues. Bernanke was maybe a touch more hawkish, fearing a rise in core inflation that would continue to press prices upwards. He also mentioned that US consumers debt have grown, but thinks that higher interest rates would be absorbed well as assets have also grown. Trichet, a known hawk repeated his views of the ECBs need to delivery price stability amidst growing inflation risks and added that excessive dynamism in asset prices increased these risks even further. In contrast, BOJ Muto remained careful, neither dove nor hawk he sees the BOJ holding on to its zero-rate policy for a while longer and replied to Trichet??™s fears that it was extremely tricky to put too much weight in rising asset prices, a bubble could only be named such after it had burst. Todays Key Issues: Only data today was out at 8amGMT, Euroland May Services PMI rose slightly more than expected to 58.7 from 58.3 in April. The Euro did not move but remains in a high range between 1.2885 and 1.2960 for now. The Risk Today: 4-H EURUSD: The Euro is holding in a tight range near its highs, 1.2960 is the key resistance, 1.2885 is strong first support. Today we are likely to remain right here, any attempt higher is probably doomed to fail at 1.30. The question here is how much of an ECB rate hike has been priced into the current exchange-rate. With a 25bp hike expected and 50bp hoped for by some, we see the larger risk in a sell-off after the announcement, judging from the charts, there is lots of space to the downside, 1.2785 is next stronger support, key support 1.2730, trading lower risks a deeper correction towards 1.24/1.25. An eventual 50bp rate hike on the other hand will probably cause additional Euro buying, once the psychological 1.30 level was breeched we will look to rise towards the 1.3660 all-time high in the weeks/months to come. 4-H GBPUSD: The range is slowly getting tighter, from nearly 4-cents a few weeks ago, it has narrowed to 1.8640 / 1.8885 today. Outlook is neutral, strong initial resistance at 1.8770, while underneath we clearly favor a fall to 1.8640. Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.2995 S 1.8885 K 113.40 K 1.2260 K 1.2960 K 1.8825 M 112.95 S 1.2170 S 1.2935 M 1.8770 P 112.50 M 1.2100 S 1.2900 1.8720 112.25 1.2070 1.2885 M 1.8700 M 112.10 S 1.2040 K 1.2785 S 1.8640 K 111.85 M 1.2000 S 1.2730 K 1.8590 S 111.55 K 1.1935 M S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot