| ifcmarkets Intraday snapshot |
The recovery off 1.4220 is likely to struggle, with resistance levels at 1.4400 and 1.4450 looming overhead. The setback off 1.4375 is on course to test projected support at 1.4294, but while 1.4294 support holds, there is room for corrective gains to 1.4450. A sustained push below 1.4294 would prompt a return to Thursday's low at 1.4220. |
| Renewed GBP bear pressure is expected on the important late June lows at 1.5911, as risk for another powerful bear wave increases. The main threat is for a downtrend extension into fresh five-month lows below 1.5911, exposing downside targets at 1.5859 and 1.5675 for the short-term, and 1.5375 for the longer-term. A recovery above 1.6020 is required to offer temporary respite, but only above 1.6089 would lift the tone. |
| Retains a USD bull tone, as resistance between 81.41 and 81.50 is under threat. The painstakingly-slow uptrend has scope for a break through 81.50 to the projected target area skirting the 82.00 level in the coming sessions. Downside risk exists to the 81.00 area, but only below Thursday's low at 80.76 would concern USD bulls. |
| A break above the July 1 high at 1.0791 is imminent, as the recovery off the 1.0655 bear trap low has room to extend. AUD bulls are on course for more gains towards the May 11 lower high at 1.0890, and the recent completion of a medium-term bull wedge keeps the underlying tone positive for a test of the May 2 29-year high at 1.1014. Corrective weakness will attract support while above 1.0714, which protects the 1.0655 low. |
| Euro struggles despite ECB goodies. On the face of it euro bulls got everything they wanted out of the European Central Bank's monetary policy committee meeting Thursday, perhaps even a little extra. They got their move, of course. The refinancing rate was duly ratcheted up the expected quarter point to 1.5%. But the door was also left open for more, with president Jean Claude Trichet telling reporters after the decision that the ECB will "monitor very closely" the risks to inflation. Despite his theatrical horror at any idea of policy pre-commitment, this phrase has in the past been used to set markets up for a rate rise in a couple of months' time and to suggest that a policy tightening bias remains intact. Given the euro zone's endless sovereign debt worries and the clear economic gulf between its national leaders and laggards, a few observers had thought Trichet would opt to give the central bank as much wriggle room as possible and avoid any nuance of decision already made. Well, he didn't. And the ECB chief also said the bank would continue to take Portuguese bonds as collateral for loans, despite their recent downgrading by credit rating agency Moody's. This is exactly what the central bank did in the cases of Ireland and Greece when the agencies clobbered them, so was hardly unexpected. Nevertheless, the markets were reassured to have it spelt out again and the euro rose against its main rivals as he spoke. So, given all of the above, it's perhaps surprising that the single currency looks set to end the week so far below where it started it, especially against the dollar. The euro got you $1.4580 on July 4, but only $1.4312 Friday, with no sign of recovery yet from the blow dealt to it by Moody's. There are some obvious reasons for this, naturally. The bulls may have got a nice little package from Trichet, but they didn't get much that was surprising. Then there's the other side of the euro/dollar equation--the dollar side. The greenback received an unexpected fillip from some perky private-sector employment numbers out of the U.S. Thursday, and may get another, much bigger one once Congress has a deal on the debt ceiling. The euro, meanwhile, remains vulnerable to shocks out of left field, in potentially endless permutations. It has already sold off Friday as investors start to worry about bank stress within the currency bloc. The European Banking Authority is expected to name weak banks when it announces the results of another round of financial health checks, probably next week. Previous tests have been regarded as far too feeble. The European Central Bank may remain intent on inflation and set fair on its course toward policy normalization. But the markets can't seem to avoid the nagging suspicion that something in the current sovereign debt mess is going to stop it getting there. |
| The euro came in for some heavy selling Friday as contagion concerns sparked back into life, with Italian bond yields rocketing and Italian bank shares sliding amid vague talk that Italy's economy minister Giulio Tremonti is poised to resign. The Italian government declined to comment on the speculation, which followed criticism of Tremonti by Italian Prime Minister Silvio Berlusconi in an interview published Friday with a local newspaper. The euro crashed to a series of session lows under $1.43 against the dollar, upending the relative calm that had settled on the currency after the European Central Bank raised interest rates Thursday and allayed some of the contagion fears by lifting some of the potential funding pressures off embattled Portugal. The cost of insuring Italian banks debt against default spiked higher as a new selloff wave hit stocks in the sector. Unicredit Spa five-year spread widened 31 basis points at 260 basis points, while Intesa Sanpaolo Spa was following 13 basis points wider at 200 basis points. Trading in Unicredit shares, which fell heavily, was briefly suspended on the Milan Stock Exchange. Italy's sovereign debt and Italian banks have been subject to increasing concern among investors, who fear the country could be sucked into the euro zone's debt crisis. "It's all about the yields. Markets are incredibly sensitive to even relatively small moves," said Paul Robson, a strategist at RBS. After the debt woes in Greece, Ireland and Portugal, markets are looking at countries closer to the core of Europe and attention is on Italy, Spain, and Belgium, he said. Looking ahead, all eyes are on Friday's U.S. jobs data after the upbeat reports this week. The median forecast is now for a gain of 125,000 non-farm payroll jobs, compared with original expectations of a rise of 108,000. But analysts at Commerzbank are less sanguine. "Our economists expect a rather disappointing result so that the euro might find support against the dollar," they said in a note. |
| The dollar edged up against its major counterparts in Asia Friday as investors speculated that a key monthly U.S. jobs report later in the global day will come in strong, after separate employment data Thursday showed the labor market firming more than expected. Dealers said that if the non-farm payrolls report for June due at 1230 GMT underscores economic recovery, that could boost the greenback further against the safe-haven yen even as it weighs on the U.S. unit against more risk-sensitive currencies such as the euro. The dollar could rise above its recent high of Y81.77, and possibly top Y82.00, if the payrolls report shows employers added more than the 125,000 jobs economists surveyed by Dow Jones expect on average, said Junichi Ishikawa, a foreign exchange analyst at IG Markets Securities. At 0450 GMT, the dollar was up at Y81.27 from Y81.24 late Thursday in New York. At the same time, the boost to investors' willingness to bet on higher-yielding, riskier assets that a strong jobs report would bring means the euro could climb to $1.4450, said Tomohiro Nishida, a senior dealer at Chuo Mitsui Trust and Banking. The common currency was at $1.4338 at 0450 GMT, down from $1.4359. On the other hand, if the jobs data misses expectations, the euro could fall back, Nishida said. "The reaction to a worse-than-expected reading could be more pronounced," he said. That's because many market participants are now positioned for a strong result, after data released Thursday by payroll giant Automatic Data Processing Inc. showed private-sector jobs rose by 157,000 in May, beating forecasts for a 95,000 gain. |
| European Central Bank President Jean-Claude Trichet alleviated some concerns about the region's sovereign-debt problems Thursday, helping to drive the euro higher against other major currencies. During his press conference after the ECB unsurprisingly raised interest rates, adding to the euro's interest rate appeal, Trichet said the central bank would waive minimum ratings requirements to accept Portuguese debt as collateral. "The [Trichet] comments overall were supportive for the euro," said Vassili Serebriakov, foreign-exchange strategist at Wells Fargo in New York. "The ECB is still in tightening mode, and it will not pull the plug on Greece," he said. Investors continue to vacillate between confidence and concern over whether Greece will get a second bailout to help finance its untenable debt situation. Worries about Portugal's debt also resurfaced this week after Moody's Investors Service cut Portugal's debt rating by four notches to junk status. Trichet's remarks also reduced some worries about potential strains in Europe's banking sector that the Portuguese downgrade might have caused, analysts said. "It reduces pressure on banks to find funding elsewhere," said Robert Lynch, currency strategist at HSBC in New York. Banks holding Portuguese debt won't have to sell assets or look elsewhere for funding because of the relaxed rules, which isn't an unprecedented move by the ECB, Lynch said. The euro hit a session low against the dollar just before Trichet's comment when the dollar rallied broadly on an upbeat jobs report. Payroll company Automatic Data Processing Inc. (ADP)said private U.S. employers added 157,000 workers last month, much better than the 95,000 economists had forecast. The dollar held onto the gains its mustered against the yen and Swiss franc following the ADP report, but retreated against the euro. Economists consistently use the ADP report along with other data released early in the month, such as the Institute for Supply Management's manufacturing and non-manufacturing indexes, to adjust forecasts for the government's key monthly employment report. |
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