The EUR is once again front and center on the currency table this morning as traders ease up somewhat on the throttle that has been driving the currency higher over the past week. In their meeting yesterday, Chancellor Merkel and President Hollande appear in agreement that Greece must keep moving forward to implement reforms in order to remain in the Eurozone.
Greek Prime Minister Samaras meets today with Chancellor Merkel and tomorrow with President Hollande. It is expected that Samaras will be asking for an extension on getting their reforms completed during these two meetings. Traders are concerned that these meetings today and tomorrow may not go as well as planned and the Samaras will not get any of the concessions that he is asking for. Technically, the EUR stayed below the resistance level at 1.2575 and at the moment is trading in the 1.2540 area. Support is seen at 1.2525, then 1.2500.
Guest post by Matthew Lifson, Foreign Exchange Trader, Market Analyst of Cambridge Mercantile Group.
After apparently being convinced that the FED is all set to begin another round of easing, based on the release of the FOMC meetings earlier this week, traders are now easing back on those thoughts after comments were made by St. Louis FED President Bullard yesterday. He commented that the minutes were “a bit stale because there was data released after that meeting that was stronger than expected”. Once again it seems that the FED is reluctant to engage in further easing as they hold out hope of a US economic recovery continuing based on recent economic releases. The speech that Chairman Bernanke is planning to give in Jackson Hole next Friday seems to be taking on greater significance as traders expect his comments on the US economic outlook will give clues towards the likelihood of further easing.
A report came out late yesterday afternoon that Spain is reportedly in negotiations on the conditions for seeking financial assistance. While this news is new, it was also reported that the ECB is considering keeping the targets of upcoming bond yields secret. That seems a bit of a stretch to me. The next thing we will be hearing is that the ECB will be placing countries that do not implement reforms on “double secret probation”.
In other currency trading, the Australian Dollar fell mightily overnight after RBA Governor Stevens gave his semi-annual testimony to Parliament in Canberra yesterday and stated that the peak of the mining boom will “occur within the next year or two”. He also stated that the RBA is “well equipped” to handle any turmoil. Governor Stevens also commented on Switzerland’s purchase of Australian Dollars, stating that these purchases by “such an anti-inflationary conservative institution”, show how bad things are in Europe. The AUD has dropped below the 1.0400 support level. Adding to the AUD woes was a general sell off in the Asian equity markets taking away some demand for higher yielding currencies such as the AUD and NZD.
HSBC released a report yesterday that stated that the US economy is actually much worse than the Eurozone and that the market will eventually see this and begin to sell the USD. After months of analysts predicting the demise of the EUR with end of year predictions all near the 1.2000 level, this is the first institution to give support to the EUR. They cite the fact that US debt will reach 73% of the US GDP this year and a budget shortfall reaching a staggering $1.1 trillion this year, which will be the fourth consecutive year of a trillion dollar shortfall. According to their currency researchers, the EUR will reach 1.3500 by the end of 2012 and the USD/JPY will fall towards 74.00. Given the actions of the BOJ over the past year, with their concerns over a stronger JPY, this prediction is pretty daring.
The EUR has moved back above the 1.2550 level while I have been writing this so, it seems the market is content at the moment to stay within it’s overnight trading range. As stated earlier, support at 1.2525 and resistance at 1.2575 should contain the market during today’s trading day.
Asian and European equity markets are mostly lower and DOW Futures have been fluctuating around parity, so expect a quiet opening to the US equity market.
Have a good day and a good weekend.
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