Forex Brokers EUR/USD Holds Close To The All-Time Highs

Daily Forex Fundamentals | Written by KBC Bank | Jul 22 08 07:21 GMT |

Sunrise Market Commentary US Treasuries break losing streak as equities cannot sustain rebound In a thinly traded session, Treasuries recouped early losses as equities slid into negative territory towards the end of the session. Today, the calendar remains devoid of key eco releases, but a speech of Fed's Plosser and again equities might give Treasuries direction. We suspect the latter might gradually trade in a more sideways pattern. Technical picture of the Bund deteriorates Friday's technical important break continued to put EMU bonds under pressure. A key 109.55 (Bund) and 4.70% 10-year yield level is looming. Slower growth and lower oil prices may keep these levels intact, but we strongly advice longs to put stop losses into place nevertheless. FX: EUR/USD holds close to the all-time highs The (credit) headlines remain mixed and at least for now this continues to weigh on the US currency. In particular the performance of the dollar against the euro remains disappointing. EUR/JPY sets new highs and continues to trade within striking distance of the 170 barrier. The Sunrise Headlines US Equities end slightly lower on higher oil price and weak American Express earnings after gaining earlier on higher-than-expected Bank of America results, Asian stocks trade mixed with Japanese Nikkei up 3.0% led by commodity producers. Bank of America earnings drop less than expected on loan losses, but American Express disappoints as it sets more money aside to cover credit (card) losses. Apple, American Express and Royal Caribbean Cruises, all depending on consumers, warned about the earnings outlook suggesting the credit crisis is affecting broad economy. Asian Development Bank said that Central Banks are moving too slowly on inflation. Oil ends higher ($ 132.00) on Monday after a very volatile session as the tropical storm Dolly entered the Gulf of Mexico and tension over Iran's nuclear program mount. Richmond Fed Manufacturing Index and US earnings results on calendar today. Currencies: EUR/USD Holds Close To The All-Time Highs On Monday, EUR/USD was again well supported. We are a bid puzzled whether this should be considered as euro strength or dollar weakness. After moving higher early in European trading, EUR/USD ran into resistance in the 1.59 area and comforting BoA results helped the dollar to (temporary) regain the intraday losses. However the move could not be sustained. Credit concerns continued to weigh on global markets (US equities failed to build out opening gains) and this is still seen (slightly) dollar negative, driving EUR/USD again towards the 1.59 barrier further out in US trading. After the bell, weaker than expected earnings from American Express only reinforced the market skepticism on the US currency with EUR/USD closing the session near the intraday highs at 1.5922, compared to 1.5847 on Monday. Today, on the calendar the US weekly retail sales and the Richmond Fed manufacturing survey. The Europe calendar is thin. Earnings from the US majors, and especially from the financial sector, might still be important for the intraday gyrations in the USD cross rates. Since last Thursday, oil traded rather stable in the 130 area, but at least for now, this is not enough a reason yet to give the dollar lasting support. Last week, EUR/USD seriously tested the top of the MT term sideways trading range. Resurfacing credit concerns (GSE's) weighed on the US currency and EUR/USD briefly traded above the previous highs at 1.6020. However, there was not follow-through price action to confirm this break. The results from the likes of Wels Fargo, JP Morgan and Citigroup were not as bad as feared and also the sharp decline in the oil prices prevented additional dollar losses. However, we have to admit the USD rebound against euro is far from convincing. So, it is not yet clear whether the credit storm is over its top and whether lower oil prices will be enough a reason to help the dollar building a solid bottom. Longer-term, we still don't see a compelling reason for EUR/USD to engage in a new strong up-leg, with the European data deteriorating quickly too. In this respect, the European sentiment indicators/manufacturing surveys published later this week should help to clarify the markets' view on the health of the European economy. We don't expect these data to paint a bright picture on the European economy going forward. In this scenario there is no need for EUR/USD to start another up-leg beyond the key 1.6020/40 area. However, short-term EUR/USD continues to remain well bid. Resurfacing credit headlines remain a short-term risk for the US currency. On top of that, markets apparently have the impression that the ECB is still more inclined to raise interest rates than the Fed and this also continues to support the single currency. Aside from fundamental part of the story, we also have the impression that cross currency price action from EUR/JPY is supporting EUR/USD at this stage; EUR/USD: the jury is still out Support stands at 1.5880/75 (Breakup/ STMA), at 1.5854 (Daily envelope), at 1.5827/25 (ST low/daily Channel bottom + MTMA), 1.5704 (Boll Midline), at 1.5782 (Last week low), at 1.5729/21 (MT breakup/ weekly envelope). Resistance is seen at 1.5948 (Previous high), at 1.5960 (Break-down), at 1.5978/81 (Daily envelope/Boll Top), 1.6023/40 (Weekly envelope/All-time high) and at 1.6193 (Irr B). The pair is moving into overbought territory. USD/JPY Last week, we argued that EUR/USD had to move away from the EUR/USD 1.60 area soon and in a convincing way to avoid the risk of an additional USD stop-loss selling move. This risk obviously is not out of the way yet. So, we wait to add to EUR/USD shorts until this picture is clarified. Stop-loss protection on EUR/USD shorts (e.g. in case of break beyond 1.6050) is still highly warranted. As already was the case at the end of last week, USD/JPY continues to perform better compared to USD/EUR. Yesterday, the gyrations in USD/JPY were also mostly driven by the US banking results with BoA causing the pair the test bids above 107 early in US trading. However, an uninspiring performance of the US stock markets later in the session and the Am. Express results after the bell made the pair to give up all the earlier gains closing the session in the 106.44 area, slightly lower from the 106.96 close on Friday. The combination of EUR/USD moving higher while USD/JPY holds rather stable at the same time also caused EUR/JPY to set a new high in the 169.90 area yesterday and the pair still trades within striking distance of the 170 barrier this morning. Of course, the question is in which direction the arrow goes (from EUR/JPY to the other cross rates or the other way around). Nevertheless, a break above that key level (170) could trigger additional stop-loss repositioning with consequence for EUR/USD and USD/JPY, too. This morning, Japanese All industry index came out in line with expectations. The Nikkei showed surprisingly strong (+2.98%). However, at least for now this is not really able to give USD/JPY strong support. Looking at the charts, the turmoil on global markets caused USD/JPY (and EUR/JPY) to temporary drop below first important support levels (USD/JPY 104.99; EUR/JPY 166.09) last week. However, this signal was soon reversed. USD/JPY is now again in the previous sideways trading range (cf graph). Oil, (the easing of?) credit concerns and the global stock market performance remain the key drivers for this pair. A less bright stock market sentiment might make further gains in this pair difficult today. We are neutral for USD/JPY. Recently, the 200-day moving average (today at 107.03) proved to be a strong resistance. USD/JPY: Rebound blocked. Support stands at 106.32/21 (Reaction low/STMA), at 105.95/84 (Reaction low+daily envelope/Break-up), at 105.65 (Weekly envelope), at 105.18/98 (Break-up/Boll Bottom), at 103.77/68 (Reaction low/38% retracement), at 102.70/55 (Reaction lows). Resistance comes in at 106.79 (Broken LTMA), at 107.03/14 (200 MA/ST high), 107.41/48 (MT reaction high/Daily envelope), at 107.75 (07 July high) and at 107.84/93 (Boll top/weekly envelope). The pair is in neutral territory EUR/GBP On Monday, EUR/GBP moved higher early in European trading. A poor UK housing report and a very negative interview from BOE's Blanchflower on the UK economy weighed on the sterling, with EUR/GBP testing offers in the 0.7970 area. However, as is already the case for quite some time, the pair lacks a strong enough momentum to clear technically important barriers and later in the session the tension on sterling eased again. The pair closed the session at 0.7947, compared to 0.7928 on Friday. Today, the UK eco calendar is empty, but BoE's King and Gieve speak before the UK Treasury committee. It will be interesting to see whether/to what extent these speakers will join the hyper-negative analysis on the UK economy from their (ultradovish) colleague Blanchflower. If so, it could be a further negative for the sterling. Since mid April, EUR/GBP developed a very uninspiring consolidation pattern (0.7766/0.8098). We turned neutral as the pair shows no trading momentum at all. Several attempts to move higher ran into resistance. Early last week a test of the key 0.8033/34 area was again rejected. EUR/GBP is now again in the middle of the longstanding trading pattern. The short-term alert on sterling is again called off. In a longer term perspective we hold on to our sterling skeptic attitude. EUR/GBP: no clear signal yet. Support comes in at 0.7948/40 (MTMA/Boll Midline), at 0.7930/27 (LTMA/Daily envelope), at 0.7906/00 (Reaction low/07 July low), at 0.7885 (MT break-up), at 0.7868 (01 July low) and at 0.7847/31 (MT reaction lows). Resistance stands at 0.7970/79 (ST high/daily envelope), at 0.7984/91 (Reaction highs), 0.7995/97 (Boll top/weekly envelope), at 0.8022 (Reaction high), at 0.8033/34 (Reaction highs). The pair is in neutral territory. News US: Leading indicators stay weak The Chicago National Activity Indicator, a kind of leading indicator, improved in June to -0.90 from a revised -1.06 in May, earlier reported as -0.96. The 3-month moving average, a more stable gauge of activity, improved to -0.93 from -1.08 in May. According to the Chicago Fed methodology, a result below -0.70 indicates a 70% chance that a recession has started. The improvement is good news and was driven by the industrial sector, but other groups of sub-indices showed some improvement too. However, it is too early to draw conclusions from this monthly improvement, also because the index is still well below -0.70 and monthly revisions are manifold. The leading indicator fell, as expected, by 0.1% M/M in June, following a downwardly revised 0.2% M/M drop in May, earlier reported as up 0.1% M/M. The index has now fallen seven times in the last nine months, as the index resumed its downtrend following some stabilization in March/April. On a yearly basis, the index is down 1.2%, the lowest this cycle, but unchanged from May. The 6-month annualized average, while still firmly negative, shows a distinct moderation since the end of Q1. The leading indicators, as well as the Chicago Nat. Activity Indicator, point to ongoing very weak activity and gives little signs of near term improvement. Download entire Sunrise Market Commentary