May 27th, 2009 ·
Euro/dollar has been unable to repeat its Memorial Day weekend foray over 1.4000 as the pound has taken center stage in the risk appetite venture, over 1.6000 for the first time since early November. Traders note some downside risk to German inflation outlook, since some German regional CPI’s have come in weak, and the ECB’s Liikanen said the ECB hasn’t set an interest rate floor, Euro negative. Technicals suggest Euro upside is limited since it failed to close over 1.4000 and it’s a sell with support at 1.3830 and 1.3721. Fundamentals are Euro supportive, but perhaps not just yet, given divergence in data: 1) 1Q GDP shows investment crashing 16% but consumer spending +.5%; 2) IFO’s current conditions are low but expectations are higher, near pre-Lehman levels; 3) indicators show Q2 is likely still contracting, but a (shaky) pick-up is expected in Q3. Traders note press reports about Eurozone banks still needing assistance, compared with the UK, where the “heavy lifting” has been launched in QE and disappointing bank announcements. Sterling hence seems the way to play improved risk appetite. Reserve diversification to Euro is also diminishing as a theme, an S&P official having said diversification is a long process and Euro not ready to replace the USD as a reserve currency. Even China said the USD remains the dominant currency, and its replacement by SDR isn’t likely. Elsewhere, Sweden’s plan to borrow SEK100 bio in currency to replenish reserves hit the SEK, and EUR/SEK hit a 7 day high.
US existing home sales today rose slightly more than expected, +2.9%, risk positive after yesterday’s ginormous jump in consumer confidence, biggest gain in 6 years, signaled consumers think the worst is over and the economy will recover later this year. AUD is hence comfortably over .7800, helped by rising CRB, and USD/CAD under 1.1200 as oil is over $63 for the first time since November. WTI futures broke over the 200-day moving average, opening the way for $76. Important USD/CAD support points are under pressure still this morning even though the strong outperformance of the commodity bloc over the past few weeks (AUD up a little more than 10% against the USD while the CAD and NZD are up by just under 10% over the past month) is a little less obvious as a group on the day, with the Kiwi under performing. The CAD was unfazed by yesterday’s budget news from Ottawa and while the sharp downward revision to the budget deficit may be an embarrassment for the government, the news still leaves Canada looking relatively strong against its major currency peers in the US and Europe in particular where deficit and debt are climbing sharply. The relatively sounder government finances in Canada plus the BoC’s reluctance to embark on CE/QE policies mean there is more upside still in the CAD in the medium term. In addition, oil prices continue to climb, with crude prices above the 200-day MA for the first time since September last year. That should give the CAD additional support in the short term at least and help offset short term worries about a GM bankruptcy (which seems to be largely factored into the markets). Technically, key medium term support points are the 200-week MA at 1.1155 and 1.1104, trend/channel support drawn off of the November 2007 low); decent buying has been seen off the lows overnight but short term charts also suggest very strong resistance now at 1.1190/00. Look for the 1.11 area to remain under pressure today; below here, there is little notable support until the 1.08/1.10 area.
No comments:
Post a Comment