The Euro rallied to new highs, again, reaching 1.3525 in early trading, on expectations that the ECB will hike rates in the near term and on robust economic growth coming from the euro zone. Carry trade crosses such as the EURCHF and EURJPY have plenty of steam left.
News and Events:
The Euro rallied to new highs, again, reaching 1.3525 in early trading, on expectations that the ECB will hike rates in the near term. President Trichet’s wording yesterday was similar to those said before rate hikes in the past. Furthermore, with the US housing market cooling down, it is widely accepted that the euro zone is outperforming the US, for now. Higher highs in both the Australian dollar and New Zealand dollar are driven by a rising interest rate expectation as well.
The USDJPY broke down through a minor support at 118.76 as traders hold off plans to aggressively buy the pair before the week-long G7 meeting that kicks off today.
Carry trade crosses such as the EURCHF and EURJPY have plenty of steam left. Our target of 165.22 on the EURJPY still holds.
Gold has traded in congestion this week between $670 and $682/oz. If we close out a day above $682, look for the next leg up to $690 first and then $700. The trend line support is clearly intact.
Today’s Key Issues:
Euro 9:00 GMT: February Euro-zone Industrial Production seasonally adjusted 0.4% vs -0.2% (MoM) and 4.2% vs 3.7% (YoY)
CAD 12:30 GMT: February International Merchandise Trade Cad$6.0 vs Cad$6.4
US 12:30 GMT: February Trade Balance -$60.0B vs -$59.1B, March Producer Price Index 0.7% vs 1.3% (MoM) and 3% vs 2.5% (YoY), PPI ex-Food & Energy 0.2% vs 0.4% (MoM) and 1.8% unchanged (YoY)
US 14:00 GMT: April University of Michigan Confidence 87.5 vs 88.4
US 17:00 GMT: Fed’s Fisher speaks in Houston on Globalization
Euro 17:15 GMT: ECB’s Trichet, Almunia, Juncker hold briefing in Washington
The Risk Today:
EurUsd: with the pair breaking through a major resistance at 1.3480, the next target is the millennium high of 1.3666 (last touched on December 30, 2004). On the downside, a move under 1.3420 could signal another sell-off to 1.3255.
GbpUsd broke above 1.9830 in early trading and has remained in the narrow resisting band between 1.9830 and 1.9855. A break above 1.9855 would raise the next leg to 1.9925, on our way to a 2.0000 target. A move below 1.9710 could put the cable in choppy levels.
UsdJpy.looks like it’s headed towards a support at 118.40, and breaking below it, we see a rush to the trend line support of 117.90, where the pair could eye very strong buyers.
UsdChf is at the trend line support of 1.2135; investors will want to see a daily close below that to confirm a possible move to the major trend line support of 1.2075.
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Resistance and Support:
By James Brandt, ACM Advanced Currency Markets, Geneva, Switzerland