It was a relatively quiet overnight trading session, with most of the currencies settling into small trading ranges overnight. The main reason for the low volume has to do with many Asian countries celebrating the New Year. And with China, one of the major players in the market on holiday, there was very little action in Asia.
The EUR remained under pressure from last week’s move as traders now focus on the political situation in Italy. The election is scheduled for February 24-25, and former prime minister Berlusconi is closing the gap on leader Bersani. A Financial Times article has labeled a Berlusconi win as “disaster for Italy” and also stated that he would be an “unreliable partner” for his European counterparts. Eurozone leaders will be meeting in Brussels today concerning financial aid for Cyprus and Greece. And adding to the Eurozone concerns is the continuing political scandal in Spain. Put all these together and it is not surprising the EUR remains under pressure.
According to Wolfgang Franz, who is the president of the ZEW institute and chairman of Chancellor Merkel’s council of economic advisors, the European crisis is a marathon and they are two-thirds complete on the course. He also stated however that the third part is always the hardest to complete. All the factors mentioned above were considered possible crisis hurdles by Mr. Franz.
The EUR fell to a low of 1.3357 overnight, briefly testing the resistance at 1.3360, before rebounding to a high of 1.3390. The G-20 leader meet later this week in Moscow on Feb. 15 -16, so this week could be one of consolidation.
USD/JPY has climbed above the 93.00 level once again testing resistance at 93.20. The currency pair at the present time seems to be stuck between technical levels of 92.50 on the downside and 93.20 on top. The JPY also fell on comments made by Haruiko Kuroda, who is one of the candidates to lead the Bank of Japan. He stated that additional monetary easing could be justified this year. This additional easing would be one of the policy tools used to achieve the 2% inflation target.
After a disappointing jobs report on Friday pushed USD/CAD above the parity level again, the currency pair has continued the move. USD/CAD broke through technical resistance at 1.0040, and the new target now looks to be 1.0100. It will be interesting to see how this moves develops early in the trading week. Support for the USD/CAD is now at 1.0040, with resistance seen at 1.0085, then 1.0100.
I would expect to see another test of the 1.3400 area in the EUR/USD today as the move lower last week still has the market in an overly sold position. EUR however, may take a backseat to USD/CAD and USD/JPY as both these currency pairs seem ready to test higher levels.
Further reading: EURUSD Update III: Larger Trend Remains Up (Elliott Wave)
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