The European markets have managed to absorb any fallout from the previous US and Asian sessions, with sentiment picking back up and currencies once again finding a bid tone on Tuesday. Interestingly enough, the Swiss Franc has been the relative outperformer, even in the face of the improved sentiment, with many attributing the relative strength to cross related sell interest in Eur/Chf.
Fundys – The European markets have managed to absorb any fallout from the previous US and Asian sessions, with sentiment picking back up and currencies once again finding a bid tone on Tuesday. Interestingly enough, the Swiss Franc has been the relative outperformer, even in the face of the improved sentiment, with many attributing the strength to cross related sell interest in Eur/Chf, which eyes some heavy reported stop-losses below the very closely watched 1.5000 psychological barrier and SNB intervention level. Sterling on the other hand has been a laggard on the day. The improvement in the BBA loans for house purchases has hardly factored into price action, with many citing the weakness to Bank of England chief economist Dale comments, after the central banker noted that the recently adopted quantitative easing policy could have a beneficial impact through the weaker Sterling rate. We have also been seeing some heavy buying in Eur/Gbp today with strong demand for the cross after posting 2009 lows by 0.8400 on Monday. Investors seem to have responded quite well for now to the latest [B]Eurozone PMI[/B]data. Although the data was slightly weaker than expected, it did manage to show an improvement from the previous releases. Also seen propping the Euro somewhat has been the earlier release of [B]German GFK consumer confidence[/B] which was better than forecast. ECB Noyer and Bini-Smaghi were on the wires. Noyer said that interest rates were appropriate at current levels and that the worst had passed (which helped to fuel additional Euro bids), while Bini-Smaghi stressed that exit strategies were to be prepared by governments and not monetary authorities. Elsewhere, Moody’s came out saying that the US AAA rating remained solid and would not be in jeopardy unless the USD reserve status was challenged or the Obama administration was unable to bring debt back to a downward trajectory. US equity futures have recovered and now point to a higher open. On the commodity front, gold trades flat while oil is still lower to $67. Looking ahead, the US house price index (-0.3% expected) and existing home sales (3.0% expected) are due at 14:00GMT, along with the Richmond Fe manufacturing index (5 expected).
Techs - EUR/USD (See below). USD/JPY continues to trade with a heavy tone, and deeper setbacks are now favored back to retest key trend support in the 93.55-85 area. Key levels to watch above and below over the coming session come in by 95.95 and 95.00. GBP/USD well offered head into the US session on Tuesday but stalling shy of key short-term support by 1.6185 which guards against a more significant decline back towards 1.5800. Key levels to watch over the coming session come in by 1.6360 and 1.6185. USD/CHF continues to consolidate but looks to be in the process of attempting to carve out a fresh higher low above 1.0650 ahead of the next upside extension beyond 1.0990. An inverse head & shoulders formation still exists, although the market needs to break higher over the next few session for this to still be valid. Key levels to watch come in by 1.0900 and 1.0765.
Flows – UK clearer and German bank bids in Eur/Usd. Lower leg of major double-no-touch at 1.5000 to expire on Wednesday in Eur/Chf. Japanese investment demand for Eur/Jpy. Central bank and German selling into Cable rallies; UK clearer and Middle East names bidding.
Trade of the Day – Eur/Usd: Any pullbacks on Monday have been ignored into Tuesday with the market rallying quite impressively back towards Monday’s 1.3965 highs. However, our overall bias remains firmly bearish and we continue to favor selling into rallies in anticipation of deeper setbacks over the coming weeks. The market has been consolidating over the past several days and a fresh lower top is now sought out to be confirmed on a drop back below 1.3750. While we do see room for additional gains today beyond Monday’s 1.3965 highs, any push above 1.4000 is not viewed as sustainable and we will therefore look to sell into rallies towards the recent consolidation highs. Strategy: SELL @1.4010 FOR AN OPEN OBJECTIVE, STOP @1.4185. Recommendation to be removed if not triggered by NY close (5pm ET) on Tuesday.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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