Euro opens the week mildly firmer after Germany and France pledged to
provide sustainable solution to Greece situation and the European debt
crisis, as well as bank recapitalization by the end of the month, before
the G20 summit in Cannes. Meetings including European Council and EU
finance ministers will be held to finalize the details of the proposal.
France Sarkozy noted that they will "recapitalize the banks", in
"complete agreement" with Germany and they will take a common position
on all issues. Germany Merkel noted that there will be a "comprehensive
package that will enable closer cooperation between euro zone countries"
and that could include changes to the Lisbon treaty.
Moody's warned that it may cut Belgium's credit rating after the
bailout of the French-Belgian Dexia. Belgium will buy the Belgian
banking business of Dexia for 4B euro and provide the bulk of guarantees
to cover leftover assets of the parent group. According to the
agency, the country's Aa1 rating is currently under review due to
materially increased funding costs for sovereigns and banks of
countries with high debt, risks to economic growth and the weight on
public finances of supporting the banking sector.
BoE Weale said that there "quantitative easing does support the
economy" and there is "quite a lot of scope" for further easing. Weale
noted that the current situation bears similarities to the 19030s and
there is a "sharp deterioration" in UK's economic prospects and "the
case for support has grown in the autumn as the financial situation has
appeared to deteriorate." On the other hand, policy maker Sentance wrote
on his blog that BoE's governor's statement last week is "potentially
very misleading" as he didn't present a distinction between economic and
financial crisis and that's "counterproductive" in maintaining
confidence of the business community.
The economic calendar is light today with Japan, the US and Canada on
public holiday. German trade surplus widened to EUR 13.8b in August.
Eurozone Sentix Investor Confidence will be released later today.
EUR/JPY Daily Outlook
Daily Pivots: (S1) 102.19; (P) 103.02; (R1) 103.51;
With 101.65 minor support intact, EUR/JPY's recovery from 100.74
could extend further higher. But after all, we'd maintain that break of
104.92 resistance is needed to confirm short term bottoming. Otherwise,
near term outlook will remain bearish and recent decline is still in
favor to continue. Below 101.65 should flip bias back to the downside
and end EUR/JPY through 100 psychological level towards 200% projection
of 123.31 to 113.41 from 117.74 at 97.94. Though, break of 104.92 will
confirm short term bottoming, on bullish convergence condition in 4
hours MACD and bring stronger rise to 106.98 and above.
In the bigger picture, whole down trend from 2008 high of 169.96 is
still in progress and is building up downside momentum again. Sustained
trading below 100 psychological level should pave the way to 100%
projection of 139.21 to 105.42 from 123.31 at 89.52, which is close to
88.96 all time low. On the upside, break of 111.93 resistance is needed
to be the first signal of medium term reversal. Otherwise, we'll stay
bearish.
EUR/USD Daily Outlook
Daily Pivots: (S1) 1.3318; (P) 1.3421 (R1) 1.3482;
EUR/USD's recovery from 1.3145 extends further higher today and
intraday bias remains mildly on the upside. But still, note again that
break of 1.3689 resistance is needed to confirm short term bottoming.
Otherwise, outlook will remain bearish. Below 1.3360 minor support will
flip bias back to the downside and should send EUR/USD to 161.8%
projection of 1.4939 to 1.3969 from 1.4548 at 1.2979, which is close to
1.3 psychological level. However, break of 1.3689 will confirm short
term bottoming, on bullish convergence condition in 4 hours MACD and
should bring stronger rally to 1.3936 and above.
In the bigger picture, current development indicates that medium term
rise from 1.1875 has completed with three waves up to 1.4939 already.
That also suggests that it's merely part of the consolidation pattern
that started back in 2008 at 1.6039. Further decline would now be seen
to 1.2873 support first and break will target 1.1875 and below. On the
upside, above 1.4548, resistance is needed to confirm completion of the
fall from 1.4939 or we'll stay bearish in EUR/USD.
EUR/GBP Daily Outlook
Daily Pivots: (S1) 0.8554; (P) 0.8629; (R1) 0.8671;
EUR/GBP rebounds stronger today and the development suggests that
recent consolidation in the converging range is still in progress.
Intraday bias is turned neutral. We'd expect some more choppy sideway
trading but after all, outlook remains bearish as long as 0.8795
resistance holds and we'd expect an eventual downside break out through
0.8529 support. Nevertheless, break of 0.8795 will turn focus back to
0.8884 key resistance.
In the bigger picture, price actions from 0.9799 (2008) should be
unfolding as a consolidation pattern in the long term up trend. The
first leg is completed with three waves down to 0.8067. Second leg
should also be finished at 0.9083. Fall from 0.9083 is treated as the
third leg and should target 0.8067 first and possibly further to 61.8%
projection of 0.9799 to 0.8067 from 0.9083 at 0.8013 (which is closes to
0.8 psychological level). Nevertheless, we'd expect strong support from
0.7693/8186 support zone to contain downside to finish off the
consolidation. On the upside, break of 0.8884 resistance is needed to
invalidate this view or we'll stay bearish now.
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