It seems like only a few days ago, all was right in Euroland. The economy was improving, the debt and equity markets were going well, and you couldn’t get enough of the EUR. Analysts began changing their predictions expecting EUR to trade higher. Things couldn’t be better. What a difference a few days make!!
The EUR continued to be pressured overnight, as anticipation over what comments may be made by ECB President Draghi following the central bank meeting on Thursday regarding the possible continued strength of the EUR have been overshadowed by the serious political turmoil that is now gripping Spain.
Spanish Prime Minister Rajoy is now hearing calls for his resignation as reports of corruption in his party begin to come to light. Adding to the concern is a debt auction scheduled for tomorrow in Spain. A failed auction would certainly add pressure to the EUR.
After rallying in the afternoon North American session yesterday and attempting the 1.3600 level overnight, the EUR has fallen back into the 1.3520’s as I write this at 4:40 am, EST. Support remains at 1.3510, 1,3500 and 1.3480. Resistance is at 1.3600. It remains to be seen how nervous traders really are concerning the Spanish political crisis. Most often the EUR takes on a “bid” tone ahead of the ECB meetings.
In the other currencies, the JPY has flirted overnight with the 94.00 handle before easing back into the mid to upper 93’s, as it was announced that BOJ governor Shirakawa will leave his post three weeks earlier than expected, on March 19. The new governor will certainly be one who is in step with easing expectation of Prime Minister Abe. JPY weakness in the crosses has actually helped the EUR and GBP from falling further. Another run at the 94.00 level is expected. There is little doubt in traders’ minds that the USD/JPY is making a slow, but steady move towards the psychological 95.00 and eventually the 100.00 area as well. Support at 93.50 should hold and resistance is at 94.10.
The Australian Dollar came under pressure overnight as well, as retail sales unexpectedly fell for a third consecutive month. The December number was reported at -0.2%, and the November number was revised downward as well. The consensus December number was for a rise of 0.3%. With the RBA keeping interest rates at 3% at this meeting and given the shaky economic report from last night, traders surveyed now expect the RBA will lower rates at their next meeting on March 5. All eyes in Australia are now on the job data release tomorrow. It’s expected the January job growth will be 6,000 and the unemployment rate will rise to 5.5%. Any deviation from those numbers on a negative side will not have a good effect on the AUD. There is some support at present at 1.0300, but that could be tested later today.
USD/CAD did not follow its commodity currency friend, staying in a quiet 20 point range overnight. USD/CHF broke above the .9100 level and looks better bid ahead of the North American trading session.
Today should be a day, traders position themselves awaiting the comments from President Draghi. The Spain problem will overshadow that. In fact, the focus is so on this part of Europe, that new Bank of England governor Mark Carney’s testimony tomorrow and the BOE meeting are almost completely being ignored. We won’t do that hear. His testimony likely will focus on GDP targeting, while the BOE is expected to leave rates and QE unchanged.
An interesting Wednesday looks to precede a busy Thursday.
Further reading: Bad news for EUR might be good news later on
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