Euro At 1.5900 As Oil Up, Stocks Down - Another Run At 1.60?

Daily Forex Fundamentals | Written by DailyFX | Jul 21 08 09:18 GMT |

Talking Points Japanese Yen: holiday in Japan but weak equities help firm up the yen Australian Dollar; PPI misses but anti dollar flows help Euro: Oil rebounds and helps euro crawl towards 1.5900 British Pound: Rightmove and dovish Blanchflower drag on sterling US Dollar: LEI and BOA earnings on tap The very familiar 'macro merry go around' of higher oil, lower equities and higher euro continued to play out as a new week of trading commenced in the currency markets. The failure to make progress on the Geneva nuclear talks with Iran over the week-end provoked fears of fresh sanctions against the Islamic regime and helped push oil higher, stocks lower and rallied the EURUSD in the process. The pair hit 1.5900 in early European trade as once again currency traders flocked to the euro on safe haven concerns. If macro themes continue to dominate trade this week the EURUSD could make another run at the key 1.60 barrier, but as the calendar unfolds the unit could become progressively more vulnerable to micro factors, most notably the IFO report due Thursday night. As we stated in our weekly, 'If the IFO reading prints … below the psychologically key 100 level the sell of in EURUSD could accelerate as the focus will shift away from the unit status as the pre-eminent anti-dollar instrument back to concerns over its yield.' Adding further obstacles to any meaningful EURUSD rally was a report today in FT which described plans by French President Nicolas Sarkozy to boost political accountability of the ECB. Specifically Mr. Sarkozy wanted the ECB to publish the minutes of it meeting – a measure that could derail its independence by making national representatives who sit on the board of the central bank vulnerable to political pressure. While Mr. Sarkozy's proposals have virtually no chance of being enacted any time soon, his rhetoric reflects the growing unease amongst Eurozone fiscal authorities with ECB's uber hawkish monetary policy as the overall economy begins to show signs of serious deceleration in growth. Therefore the conflict within the 15 member union may keep the ECB stationary for the rest of the year, even if inflationary pressures do not abate. This scenario is will become even more likely if the labor markets in the region which have been surprisingly resilient begin to contract. In short another run at 1.60 is quite possible but we doubt the EURUSD may muster much momentum beyond that point unless systemic risk in the US continues to escalate. To that end today's Bank of America earnings will be of key interest to currency traders as they remain focused on the state of the US financial sector. Friday's better than expected results from Citibank helped the buck to move away from the 1.6000 figure, but if BOA news is negative it may return there once again DailyFX Disclaimer Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources