The euro has come under increasing pressure as concerns over euro-zone sovereign debt weighed on the single currency.
The euro weakened as the cost of insuring against a default in Portuguese government debt rose to its highest level since January and Greek unemployment hit a record high. Further pullbacks seen likely as worries about how Europe will address its fiscal problems offset expectation of an upcoming rate hike by the ECB.
During last weeks meeting Jean-Claude Trichet said “strong vigilance” was warranted on inflation. This was the phrase used throughout the bank’s 2005-08 rate tightening cycle to pave the way for a rate increase at the next governing council meeting.
The sterling dropped to $1.6150 off last weeks high of $1.6344. The BoE is expected to keep rates on hold at its monetary policy committee meeting today, but some policy makers are growing increasing nervous about the threat of inflation, and money markets are fully pricing in around a 75% chance of a quarter point rate hike in May.
Australian employment fell 10,100 in February, well below market expectation for a rise of 20,000. The unemployment rate was in line with expectations of 5%. Data showing China posted a trade deficit in Feb also weighed on the Aussie. The numbers suggested that China’s growth could slow and affect countries such as Australia, which has benefited from China’s expansion.
Gold remained steady as investors waited to see if the international community would agree to a ‘no fly zone’ for Libya, while holdings in the world’s largest silver ETF struck a record high, reflecting greater interest in the relatively cheaper metal.
Investors are worried by mounting unrest across the Arab world and renewed concerns over Euro zone debt factors sent gold to all time highs above $1440 earlier this week.
Oil rose around 0.4 per cent on Thursday with US crude near $105 and Brent above $116 a barrel, after forces loyal to Libyan leader Muammar Gaddafi bombed oil industry infrastructure, inflicting what could be longer-term damage on the country’s exporting capacity. Gaddafi’s forces struck an oil pipeline leading to the Es Sider town and dropped bombs on storage tanks in the Ras Lanuf oil terminal area in the eastern section of Libya that is rebel-controlled. Rebels said government forces also hit an oil pipeline leading to Sidrah. Total US crude inventories rose 2.51 million barrels last week, the EIA said, dwarfing the forecast for an increase of just 400,000 barrels in a Reuter’s poll. The weekly inventory data also showed drawdowns for gasoline and distillates were bigger than expected, reflecting improving demand.
A lack of economic data kept the dollar in check yesterday as traders took a pause in this week’s dollar buying. However, the Canadian dollar reached its strongest level versus the US dollar since November 2007.
Before the opening of the US trading session the EUR/USD reached a high of 1.3940. However, the pair finished the day up only slightly at 1.3904. Traders sent the pair lower early in European trading pushing the price to a new weekly low but were unable to drive the pair much lower than the 1.3860 level. The failure of the pair to close below this support level does not bode well for the greenback. As such, the recent pullback may be assumed to be technical in nature and further gains for the pair may be recorded. Resistance for the EUR/USD come in at Monday’s high of 1.4035 and the November high at 1.4280.
The Canadian dollar has put in a strong performance with the recent surge in oil prices. Yesterday the pair fell below the psychological 0.9700 support level and currently stands at its lowest level since November 2007. A lack of support on the charts is apparent and thus the pair and could continue its decent lower, targeting the November 2007 low at 0.9054.
Today investors will be focusing on US weekly unemployment numbers which should continue to show improving data as last month’s jobs report displayed positive attributes of a recovering, albeit slow US unemployment picture. Also trade balance data will be released from both the US and Canada.
Yesterday the Reserve Bank of New Zealand slashed interest rates by 50 bp to bring the new rate lower to 2.5% from 3.00%. The move comes as the government tries to spur growth following 2 earthquakes, the most recent damaged New Zealand’s second largest city. The RBNZ stated the loose monetary policy will remain in place until the rebuilding phase has passed.
In response, the New Zealand dollar lost further ground versus both the US dollar and Aussie dollar with the NZD/USD falling to its lowest level since December. The pair is currently testing the 0.7340 support level. A break below this price may trigger further technical selling of the pair with a target at the August 2010 high at 0.7200.
The Japanese economy shrank in Q4 with the decline more than economic forecasts. Japanese GDP contracted at an annualized rate of 1.3%. The previously reported number showed the Japanese economy contracted by 1.1%. However, a bright spot accompanied the report as machine orders rose in January by 4.2% which was well above market expectations.
The USD/JPY looks to be holding below the 83.00 level and could turn lower with support coming in at 82.50, a level that coincides with the 55-day moving average. A move below this level would target 82.20 followed by 81.50.
Beta 2 Forex News, Jovi Overo, Beta 2 Ltd, Tuesday August 23 2011
August 23, 2011 — Jovi Overo, Beta 2 LtdThe US dollar (USD) was seen trading mildly bearish early Monday as traders viewed comments by the Fed as a sign of potentially impending hawkish moves on the policy front. The sudden jolt to risk appetite generated by such movement pushed down on the greenback, but seems to have lifted following fears of bank interventions in Japan and a string of reports out of the euro zone today which could reverse much of the markets recently acquired short-term stability.
Data from the American housing market yesterday also signalled an uptick in mortgage delinquencies from the previous month, revealing a slump in the number of households able to pay off their mortgages. The news has done little to the forex market, however, though it could ripple through longer-term analyses on US capital markets.
As for today, the US economic releases will focus mostly on housing and manufacturing. Today’s publications, however, will mainly be euro-centric. Liquidity will likely be higher in today’s early trading as several European events are being published in rapid succession. French and German liquidity will be heightened, and Canada will contribute to today’s movements with its retail sales reports. Traders will want to pay close attention to today’s euro zone data.
The euro (EUR) is expected to be seen trading with mixed results this morning ahead of a slew of reports on the euro zone’s major economies’ manufacturing and service sectors. Against the US dollar (USD) the euro has been seen trading somewhat bearish as the greenback moves upward against its currency rivals.
Traders are looking for a way to balance a renewal of risk aversion with continued shakiness in global markets. A mildly pessimistic sentiment towards investing in the US dollar at the moment has many investors on edge. An embattled euro zone, fending off market bears amid turmoil in its peripheral nations, also looks to be losing ground in financial markets as safe haven assets such as the Swiss franc (CHF) and Japanese yen (JPY) make gains; though central bank interventions in Japan may offset the JPY’s gains.
Sentiment across the euro zone has turned negative, with many analysts and economists expecting moves towards safety by traders this week. Any more bearishly-leaning news out of any major global economy will likely pull down on the EUR even further as investors flee risk. With a heavy news day ahead, many traders are anticipating significant data releases to move the market. If today’s data continues to reveal negative market directionality, the EUR is likely to remain bearish.
The Japanese yen (JPY) was seen trading mildly lower versus most other currencies this morning as its value as an international safe haven was being challenged by an air of impending intervention by the Bank of Japan (BOJ). Being linked to international risk sentiment, the yen has experienced an expected uptick during a period when shifts away higher yielding assets became prominent. The JPY has been experiencing several long strides lately from the various shifts into riskier assets.
The latest moves of the yen are causing some concerns, however, as many speculators are anticipating another round of intervention by the BOJ. A strengthening yen has benefits for the buying power of the island economy, though its dependence on exports makes a strong yen unfavourable for longer-term growth in Japan’s current financial model. As the island currency remains bullish, the pressure begins to mount for the expected bank move to lower its currency strength.
Crude Oil prices held steady Monday as sentiment appeared to favour a mild uptick in global stocks following reports of monetary moves being made by several central banks. Data releases out of Europe and the US last week are still driving many investors back into safe-haven assets as many reports suggested a surprise downtick in growth among global industrial output and consumer spending.
An expected dip in dollar values due to this week’s risk sensitive environment has helped many investors ram up their long-taking positions on physical assets, but with the USD’s losses not materializing in large enough numbers, sentiment appears to have the price of crude oil holding steady. Should Crude Oil sentiment continue to flatten this week, oil prices may reach a decision point which forces a wide swing by mid-week.
Jovi Overo