The single currency has drawn no benefit from the “solution” of the Greek crisis. Focus will shift back to data: disappointing euro area’s PMIs could depress the euro. Sterling proving resilient against downward pressures, but will face the Budget test on the 21st…….
For professional investors and advisers only
EUR – The favourable effect the FOMC reaped on the dollar was well visible on the euro, which pulled back from almost EUR/USD 1.3200 to just shy of 1.3000. Also, the “positive” outcome of the Greek crisis failed to benefit the single currency. This seems to suggest that Greek debt is no longer a market story, and that focus should now shift back to traditional fundamentals, and on growth in particular. Therefore, negative European economic data, as opposed to positive releases in the US, should produce a negative impact on the euro. As the market has already partly priced in a positive scenario for the US economy, European data could prove to be a discriminating factor. Next week will be important on this front, as the flash euro area PMIs are due. In case of disappointment, the euro would correct to below 1.3000. Supports beneath that level are 1.2974 – 1.2931 – 1.2887 – 1.2827 – 1.2786 – 1.2734 – 1.2699 – 1.2624. The two main downside targets from a technical standpoint, as repeatedly referred, are EUR/USD 1.2827 and 1.2624, although a markedly short market on the euro could continue to contain downside or push further back in time the expected correction.
GBP – Despite (1) poor labour market data and (2) Fitch’s downgrading of the United Kingdom’s outlook to negative from stable, sterling strengthened on the whole this week, both against the dollar and the euro. As is the case with the euro, substantial short sterling positions on the market are creating downside resistance. Next week, however, the resilience of the pound could start to waver. This is because of (1) several data releases, mostly expected to prove poor (first among them CBI industrial trends and retail sales), (2) publication of the minutes of the latest BoE meeting, and most off all (3) Chancellor of the Exchequer George Osborne’s unveiling of the new Budget (by no means a straightforward budget, given the need to continue pursuing fiscal consolidation despite the fragility of the British economy).
JPY – Also following the outcomes of the BoJ and FOMC meetings, the yen slipped against the dollar more than we had expected, from USD/JPY 82 to 84. The movement of the USD/JPY, in turn, drove the EUR/JPY, which rose from 107 to 109. Both against the dollar and the euro, the levels reached could justify a technical hiatus, although against the euro in particular the yen could retrace on the upside before continuing its downswing.
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