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Traders for now are comfortable buying EUR and that

The EUR moved higher in overnight after comment from EU members and the Spanish Bond auction gave traders confidence in buying the single currency. President of the European Council, Van Rompuy stated that Europe should get back on a positive growth cycle in 2013.

EUR USD Higher January 17 2013
EUR USD Higher Within range – click to enlarge

While he gave no information to back up this statement, the words were enough for traders to buy. Previously ECB board member Asmussen said there might only be a “mild recession” in the Eurozone. He also stated that the ECB was taking a more prominent role in solving the debt crisis.

The widely expected Spanish bond auction found lower average yields, selling a total of €4.5 through 3-year bills (at 2.713%, from previous 3.358%), 5-year bills (at 3.770%, from 3.988% previously) and 2041 bonds (5.696%, from previous 6.002%).

After these results became public, the EUR broke above the 1.3350 previous European morning resistance area. Technically, we are looking at a 1.3425 target as the bulls seem intent on putting “risk on” trades in place.

In other currency news, Japan, Prime Minister Abe said yesterday that the government will “choose someone who can appreciate my basic policies to beat deflation” to succeed Shirakawa as BoJ government after his term ends in April. He also emphasized the it must be a “person with firm determination and ability.”

An opposition party said that Abe  shouldn’t  choose someone within the BoJ or there would be no change in thinking. Chief Cabinet Secretary Suga said that they can’t pass the nomination through both chambers of Diet “without help from opposition” indicating that they would consider views of opposition parties. As noted before, the JPY will likely consolidate further ahead of next week’s BoJ meeting where the central bank is expected to expand its stimulus program and double the inflation target to 2%.

USD/JPY is back above 89.20 and once again there is talk of testing 90.00 sooner rather than later.

Yesterday’s release of the FED’s Fed Beige Book indicated that “economic activity has expanded” since the last report. All 12 districts described that they attained “either modest or moderate” growth while the job market was “mostly unchanged” but “hiring plans were more cautious for firms doing business in Europe or in the defense sector”. Adding to the positive theme of the report, the real estate sector and consumer spending showed improvement while the manufacturing sector remained mixed. It was also noted that New York and Philadelphia had “rebounded from the immediate impact of Hurricane Sandy”.

This good “USD” news was trumped by the “better” overnight “EUR” news. Traders for now are comfortable buying EUR and that should not change.

Further reading:  GBP/JPY Riding on Uptrend Support – Where Next?

Matthew Lifson

Matthew Lifson

Matthew Lifson is a Foreign Exchange Trader and a Market Analyst. with Cambridge Mercantile Group.