The single currency retreated from 3-week high against the
greenback as some traders booked profit on their long euro position
ahead of the meeting between French President Sarkozy and German
Chancellor Merkel. The meeting will be held in Paris and is scheduled to
start at 1400 GMT, followed by a joint news conference at 1600 GMT. As
indicated in our previous update that Eurobonds will not be discussed in
the summit, investors bet the meeting will be very much non-event and
only the two leaders may only talk about improving economic governance,
so no specific measures will be announced to deal with the regional debt
crisis contagion. If that is that case, then traders' focus will
probably shift back to the release of several European economic data
today, including German Q2 GDP (forecast at 0.5% vs previous 1.5%) at
06:00GMT and eurozone Q2 GDP (consensus at 0.3% against prior 0.8%).
Both are preliminary data and the forecasts are weaker than previous
readings, if the data (especially the eurozone GDP) do come in weaker
than expected, concerns over debt crisis of peripheral countries plus
Spain and Italy will be once again heightened. Basically traders are
already betting there may be higher chance the number will be weak with
previous manufacturing PMI all showed soft readings. Stops below 1.4400
were triggered and only light bids are reported at 1.4370 and 1.4350
with more stops seen below latter level and 1.4300.
The retreat in EUR/CHF was another reason on today's pullback in
euro, after surging over 1300 points from the record low of 1.0075, the
currency pair finally reached a temporary top at 1.1458 yesterday.
Although EUR/CHF opened higher yesterday and rose by 2.2% on Sunday's
newspaper report that the SNB was poised to set a target rate above 1.10
Swiss franc per euro, the pair retreated as traders found the level of
1.13-1.14 too attractive to buy Swiss franc. With more and more dealers
not convince of an actual EUR/CHF peg plus persistent eurozone debt
problem, sooner or later renewed safe-haven demand will emerge again.
Current speculation is that the SNB may take action tomorrow (17 Aug)
and if there is any disappointment caused by the Swiss authorities, the
franc may once again surge across the board. It was quite obvious that
the Swissy met heavy offers right ahead of the psychological 0.8000
level and bids at 0.7800 were absorbed this morning, next batch of
buying interest is tipped at 0.7700 by UK name and offers from same
party are also noted at 0.7850-60 and further out at 0.7900-10.
The British pound also slipped since overnight New York session as
traders squared there long cable position ahead of some important UK
data due out later today. The highlight of the day will be on July CPI
with forecast centered at -0.1% m/m and 4.3% y/y, consensus for core CPI
at 3.0%; UK RPI will also be released at 08:30GMT with economists
expecting -0.2% m/m and 5.0% y/y. DCLG house price data will also be
published at the same time but will have much less effect on sterling.
Some traders already priced in a lower-than-expected CPI which may lead
to a downward revision of BOE quarterly inflation report, hence put
pressure on the British pound.
Elsewhere, the release of RBA's August meeting minutes dragged aussie
down a bit, overall tone from the minutes was quite balance but it did
not suggest any sign that the central bank was considering cutting rates
in the near future. In wake of the ‘acute' uncertainty in global
financial markets, committee members voted against a rate hike in the
last meeting. The minutes also stated that subdued consumer spending and
higher Australian dollar were seen dampening inflation, the central
bank saw downside risks more pronounced and it was prudent to hold rates
whilst assessing the economic growth. Nevertheless, no surprise was
seen from the document but some traders interpreted as there is very
much unlikely that RBA will raise rates.
EUR/JPY Daily Outlook
Daily Pivots: (S1) 109.94; (P) 110.49; (R1) 111.49;
Intraday bias in EUR/JPY remains neutral for the moment. While
recovery from 108.01 might extend further, we'd continue to expect
upside to be limited by 111.23 minor resistance and bring fall
resumption. Below 109.62 minor support will flip bias back to the
downside. Further break of 108.01 will extend the whole decline from
123.31 towards 105.42/106.28 support zone. On the upside, above 111.23
will bring stronger rebound. But after all, we'd stay cautiously
bearish as long as 114.17 resistance holds and expect more downside
ahead.
In the bigger picture, current development suggests that rebound from
105.42 medium term bottom was merely a correction and has completed at
123.31 already. Whole down trend from 2008 high of 169.96 was not
finished yet and should extend beyond 105.42. Also, as weekly MACD will
most likely break its trend line as the current fall from 123.31
extends, EUR/JPY is possibly regaining medium term downside momentum
too. Break of 105.42 will target 61.8% projection of 139.21 to 105.42
from 123.31 at 102.42 first. Though, note that break of 123.31
resistance will in turn revive the case that the medium term trend has
reversed and will turn focus back to 139.21 resistance instead.
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