We begin the week with the EUR showing a bit of weakness for the first time in 2013. After opening at the 1.3645 level, the single currency has drifted lower during overnight Asian and early morning European trading, cracking the serious support level of 1.3600 after the release of Spanish Unemployment for January, which rose 132,100 extending unemployment to almost 5 million people.
This number was short of the 150,000 expected but much worse than December’s contraction of 59,100. Are we beginning to see a crack in the EUR armor?
It has seemed since the beginning of the year that all was good in “Euroland”. In fact there are some who have been predicting a move past the 1.4000 level and expect that comments made by ECB President Draghi following this week’s ECB meeting will help continue the EUR rise. But there are problems and it seems that traders are paying a bit more attention to these as we begin the first full week of February.
If the economics doesn’t hurt you, then surely the politics will. There have been corruption allegations made against both Spain’s PM Rajoy and Italy’s Berlusconi. Adding to this, was the news last week that Deutsche Bank recorded a EUR 2.17 billion loss. While stating that the Euro economy is in a much better position than it was a year ago, German Finance Minister Schaeuble said on Friday that the Euro crisis is not over.
After reaching 1.3700 on Friday, the highest level since November 2011, the EUR has fallen back. The currency has been seriously overbought on the technical side, so this retracement is not a complete surprise. What bears watching now is how far this reversal carries. The EUR has tested support at few times at 1.3600, and as I write this at 4:30 am, we are back below that level, testing the overnight low at 1.3588. A break of 1.3570 could see some stronger selling moving the currency lower. To reverse the upside momentum, we would need to see a close below 1.3480, which is still a ways away.
In other currency news, the USD/JPY has broken through another big figure and is now testing resistance at the 93.10 level. Over the weekend, Finance Minister Aso stated that the weaker JPY was a result of the policies aimed at ending deflation, but was not the goal of these actions. He was responding to European claims that the recent move in JPY could contribute to a currency war.
Central bank meetings by the RBA, ECB and BOE will garner attention this week and while no rate moves are expected, the statements following the meetings will be closely monitored. There are some who think ECB President Draghi may express concerns over the recent strength of the EUR.
Asian equity markets were higher overnight and this was scene as a carry over from positive job and manufacturing data released in the US on Friday.
For today, it looks like there will be a test on the downside and we will wait and see how traders react to the pressure.
Further reading: Sad sterling
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