On Friday, EUR/USD dropped temporary below the 1.32 mark as S&P downgraded Spain. However, European markets and the euro held up fairly well during the day. The US Q1 GDP was also no support for the dollar. So, EUR/USD closed the day even with some moderate gains.
On Friday morning, the euro was under moderate pressure as markets tried to assess the impact from the S&P downgrade of Spain. The rise in Spain’s unemployment rate was also of no help. TheEUR/USD cross rate was changing hands in the 1.3160 area around the open of the European markets. However, the reaction, on the currency market and on the European equity markets was very orderly. European equities opened in negative territory, but the losses were soon reversed and a similar reaction was seen in the EUR/USD cross rate.
EU/Spanish markets reacting this way to high profile negative news suggests that these markets were oversold and that quite some negative news was discounted. Later in the session, market sentiment improved further. An Italian bond auction was ok. This was not the most important issue, but it helped to limit any potential (negative) impact from the S&P downgrade of Spain. In the afternoon, the focus turned to the US Q1 GDP growth. The report brought a slight disappointment, even as consumer spending held up well. The figure kept the debate open on more Fed policy stimulation in case the economic momentum would slow further down the road. This was seen a negative for the dollar while equities remained will bid. This context supported the euro against the dollar and EUR/USD reached a minor correction high after the publication of the US Q1 GDP report. The final Michigan consumer confidence was also revised slightly higher but had no big impact on EUR/USD trading. The pair closed the session at 1.3255, compared with 1.3219 on Thursday. The performance was partly due to overall dollar weakness, but once again, one can not but retain the conclusion that the euro is holding fairly strong given the ongoing flood of negative news headlines on the EMU debt crisis.
EU/Spanish markets reacting this way to high profile negative news suggests that these markets were oversold and that quite some negative news was discounted. Later in the session, market sentiment improved further. An Italian bond auction was ok. This was not the most important issue, but it helped to limit any potential (negative) impact from the S&P downgrade of Spain. In the afternoon, the focus turned to the US Q1 GDP growth. The report brought a slight disappointment, even as consumer spending held up well. The figure kept the debate open on more Fed policy stimulation in case the economic momentum would slow further down the road. This was seen a negative for the dollar while equities remained will bid. This context supported the euro against the dollar and EUR/USD reached a minor correction high after the publication of the US Q1 GDP report. The final Michigan consumer confidence was also revised slightly higher but had no big impact on EUR/USD trading. The pair closed the session at 1.3255, compared with 1.3219 on Thursday. The performance was partly due to overall dollar weakness, but once again, one can not but retain the conclusion that the euro is holding fairly strong given the ongoing flood of negative news headlines on the EMU debt crisis.
This morning, EUR/USD is holding near Friday’s closing levels in Asia. Trading is developing in thin market conditions as several markets are closed.
Later today, the calendar is moderately interesting. This morning, there will be a lot of headlines on the first estimate of the Spanish Q1 GDP growth. A contraction of 0.4% Q/Q is expected. This will bring the debate on (European) action to support growth back in the spotlights. As no details are available, it won’t be that easy to make an in depth analysis. A much weaker than expected figure might be a negative for European markets and for the single currency.
However, we don’t expect this report to be of lasting impact for EUR/USD trading. The CPI estimate is no market mover. The US data will probably also be of intraday importance, at best. The info of the March personal spending data is already available via Friday’s GDP report. The Chicago PMI is interesting, but of late, the market reaction to this kind of indictors was limited. Investors will prefer to wait for tomorrow’s ISM of the manufacturing sector. Of late, EUR/USD held up reasonable well, especially given the ongoing negative news flow from Europe. We don’t see a trigger for this pattern to change today. Later this week, the US ISM’s, the ECB meeting and the US payrolls report have the power to change sentiment on EUR/USD trading. The key question might be whether the US payrolls will be strong enough to mute the debate on more Fed stimulation. This is a key element for the dollar to come back in the driver’s seat. We stay USD positive longer term, but we have to admit that there is no shortterm trigger available to push EUR/USD below key support yet.
However, we don’t expect this report to be of lasting impact for EUR/USD trading. The CPI estimate is no market mover. The US data will probably also be of intraday importance, at best. The info of the March personal spending data is already available via Friday’s GDP report. The Chicago PMI is interesting, but of late, the market reaction to this kind of indictors was limited. Investors will prefer to wait for tomorrow’s ISM of the manufacturing sector. Of late, EUR/USD held up reasonable well, especially given the ongoing negative news flow from Europe. We don’t see a trigger for this pattern to change today. Later this week, the US ISM’s, the ECB meeting and the US payrolls report have the power to change sentiment on EUR/USD trading. The key question might be whether the US payrolls will be strong enough to mute the debate on more Fed stimulation. This is a key element for the dollar to come back in the driver’s seat. We stay USD positive longer term, but we have to admit that there is no shortterm trigger available to push EUR/USD below key support yet.
Technicals. Two weeks ago, EUR/USD came within striking distance of the 1.2974 key support but a real test didn’t materialize. The pair settled again in the 1.3000/1.3213 trading range. The pair tested the topside of this ST range at the end of last week. This test is ongoing as the pair set several minor new highs, but a clear break didn’t succeed yet. We maintain a neutral bias short term. In case of a break of the 1.3213/70 area, 1.3386 is the next high profile level on the charts. The 2012 top is at 1.3487. Of late, the day-to-day momentum of EUR/USD is not that bad, but we still see any major upside break as unlikely. So, we still look to sell into strength. On the downside, the 1.3000/1.2974 area is the key line in the sand. A break below 1.2974 would open the way to the 1.2623 year low.
On Friday, EUR/GBP trading developed in a tight sideways trading range. Sterling reached a new higher against the euro. There was a temporary setback intraday, but sterling closed the week near the recent highs.
EUR/GBP dipped after the open of the European markets as investors reacted to the rating downgrade of Spain by S&P. EUR/GBP reached a now correction low at 0.8134, below the 0.8143 support. However, the reaction to the rating downgrade was rather short-lived and the euro found a better bid overall.
EUR/GBP settled in the mid 0.8150 area. On the other hand, Cable continues to set new highs from 2012 after the US GDP release, illustrating the underlying strong performance of the UK currency. EUR/GBP closed the session at 0.8149, compared to 0.8169. Markets clearly continue to anticipate a scenario of the BoE not raising the program of asset purchases at the May meeting (next week).
EUR/GBP settled in the mid 0.8150 area. On the other hand, Cable continues to set new highs from 2012 after the US GDP release, illustrating the underlying strong performance of the UK currency. EUR/GBP closed the session at 0.8149, compared to 0.8169. Markets clearly continue to anticipate a scenario of the BoE not raising the program of asset purchases at the May meeting (next week).
Today, there are no important eco data in the UK.
Two weeks ago, the Minutes of the April BoE Meeting pushed EUR/GBP out of the previous range. Several other key support levels are lining up like 0.8143, the August 2010 low and 0.8068 the June 2010 low. EUR/GBP is now extensively testing the 0.8143 support. It could take time for EUR/GBP to break clearly below these high profile levels. Nevertheless, we are encouraged by the recent good performance of sterling and thus keep our EUR/GBP short position.
On Friday, the USD/JPY cross rate dropped to the key 80.30 support area. The BOJ eased monetary policy further, trying to convince the markets on their commitment to fight inflation and to bring inflation to the 1.0% target. The BOJ took quite a big step. However, looking at the price reaction of USD/JPY, markets are not convinced that that the BOJ is on track to meet its targets.
USD/JPY drifted further south in the 80 big figure. The weaker than expected US Q1 GDP report was also no help for USD/JPY. It keeps the debate/risk on QE3 in the US alive. This weighs on the dollar overall and USD/JPY is no exception to this rule. USD/JPY closed to weak near the key 80.30 support.
USD/JPY drifted further south in the 80 big figure. The weaker than expected US Q1 GDP report was also no help for USD/JPY. It keeps the debate/risk on QE3 in the US alive. This weighs on the dollar overall and USD/JPY is no exception to this rule. USD/JPY closed to weak near the key 80.30 support.
Today, Japanese markets are closed. So, yen trading will develop in thin market conditions. Nevertheless, the red alert in the USD/JPY cross rate is on. Will this week’s US eco data be strong enough to save the downside in this cross rate. 80.30 was our line in the sand. So, tight stop-loss protection on USD/JPY long positions is warranted.
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