The positive sentiment on the EUR has continued this morning as the single currency has broken through the 1.3405 resistance level after the release of German IFO numbers. All components of the German IFO series exceeded expectations for January. Business Climate rose to 104.2 beating expectations of 103. Current Assessment was at 108, better than the 107.2 expected and Expectations rose to 100.5, which beat the 99 projection.
Given these better than expected numbers, some German economists are talking about a possible 0.2% growth in the Euro economy in the first quarter of 2013, with a recession now looking unlikely. Also on traders minds this morning will be the announcement by the ECB of early repayment of LTRO funds. These funds were first borrowed in December 2011. The first amount was worth EUR 489.2 billion and the second LTRO that was done in February 2012 was worth EUR 529.5 billion. The first announcement occurs this morning and speculation is that there will be a larger portion repaid than expected, which will be EUR positive.
Following the IFO announcement, the EUR rose as high as 1.3442, but has since come off a bit into the mid 1.3430’s. Pro EUR sentiment is strong and if the LTRO announcement goes as expected, a test of the 1.3450 level is likely. The next level of resistance would be 1.3480. On the downside, if the LTRO announcement is disappointing, the speculative long positions that have been created this morning could be reversed. Support is now at 1.3405, and then 1.3380.
All seems right in “Euroland” at the moment, so expect the EUR to test new highs at some point later today. All this buying has created a short term overbought scenario on the technical charts so there may not be too much further movement higher.
In other currencies overnight, despite concerns voiced by many central bankers, the JPY continues to weaken. USD/JPY briefly broke the 90.90 level and looks poised to attack the 91.15 resistance level. If the EUR continues it’s rise, EUR/JPY buying will aid the weakening of JPY and this resistance area will certainly be tested. It will be interesting to see how the “weaker JPY” scenario plays out in the next few weeks.
USD/CAD remains well bid and the release of the Canadian CPI number later this morning may add to that move. The headline CPI number is expected to rise to 1.2% year on year, from 0.8%, while CPI core is expected at 1.5% year on year from 1.2%. Since the Bank of Canada meeting earlier this week, the CAD has weakened, moving through the parity level and remaining above there. Any downward surprise on the CPI number could push USD/CAD to test resistance at the 1.0055-60 level.
It looks like it will be a rather volatile Friday. Adding to this is an expected late afternoon winter storm in the US Northeast, which could see traders leaving early which would reduce liquidity as the week ends.
Further reading: UK GDP Falls 0.3% in Q4 – Worse than expected – triple dip recession
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