[B]
Talking Points
• Japanese Yen: Breaks 102.00 as risk aversion persists
• Euro: Holds 15400 remains heavy despite decent data
• Pound: Above 2.0200 as PPI remains elevated and MP surprises to the upside
• Canadian dollar: Housing starts on tap
• US Dollar: Wholesale inventories only data today[/B]
EURUSD had a difficult time with the 1.5400 level on the first day of trading this week, as the pair met stiff resistance at that barrier despite relatively healthy overnight EZ economic data. The euro remained range bound through most of the Asia and early European trade, repelled several times from the 1.5400 figure as profit taking continued from Friday.
The economic news from the EZ was generally good with German Trade Balance beating expectations at 17.1 Billion versus 15.5 Billion projected while French Manufacturing Production saw a sharp rise of 3.1% versus 1.7% expected. Still, the best that tonight’s economic data could do for the euro was stem further profit taking forays. Having gained more than 400 points in the last two weeks, the EURUSD is clearly overbought and in need of a pause as markets digest the latest rally.
The torrent of bad US economic news has stopped having a negative impact on price action in the pair as dollar sentiment has become so bearish that there appears to be little on the economic front to shock currency traders into further dollar selling. This week the markets will get a glimpse of the US Trade Balance data and the Retail Sales numbers, neither of which promise to be very positive. However, unless both of these numbers miss badly the dollar is unlikely to weaken further. The market continues to be skeptical about EZ ability to expand steadily given the recent implosion in US economic demand. For now the data continues to support euro bulls, but with exchange rates near the 1.5500 level many currency traders are uncertain as to how much further the euro can climb on momentum alone.
Meanwhile in UK, the GBPUSD briefly popped above the 2.0200 level as the UK PPI data along with Manufacturing and Industrial Production continued to show an expansion in demand marked by persistent price pressures. Although IP slipped a bit to -0.1% from 0.1% expected, MP jumped to 0.4% from 0.1% forecast. At the same time output prices cooled a bit to 0.3% from 1.0% the month prior but rose a whopping 6.0% on a year over year basis. Such figures are sure to keep the BoE biased to the hawkish side, especially given the fact that manufacturing sector continues to perform relatively well despite 2.00+ pound exchange rates. One reason for such resilience in the UK Industrial sector has to do with the EURGBP exchange rate. Having reached record highs near the 7700 figure, the EURGBP price action has been a tremendous help to UK producers who export the majority of their wares to the EZ. Given the massive run up in the cross and the decidedly more hawkish tone of recent UK economic data we believe a move back to the 7500 level in the pair is likely in the near term, especially if EZ economic data finally starts to falter.
Will EURUSD go to 1.5500? Join us in EURUSD Forum
