Support at 1.4036 is under threat, and there is room for more weakness towards the base of congestion at 1.3951. The setback off 1.4190 extends the decline off the July 14 reaction high at 1.4282, and there is technical room to the 1.618 Fibonacci extension target at 1.3887. Regaining ground above 1.4115 is necessary to relieve the bearish EUR outlook, but only above 1.4190 would put EUR bulls in control. |
| Corrects lower towards 1.5980, as support at 1.6050 is challenged. The 50% Fibonacci retracement level of last week's 1.5783/1.6192 rally also lies in the 1.5980 area, which is expected to provide the limit for corrective downside scope. Last week's bull hammer candle dominates the tone, and GBP bulls need to force a break above 1.6165, in order to re-open the July 14 reaction high at 1.6192. |
| Threatens to edge lower towards the range low at 78.45. Support at 78.96 is expected to yield, leaving Friday's high at 79.27 isolated and last week's four-month low at 78.45 vulnerable. USD bears are still on course for 77.80 and 77.13 for the longer-term. A recovery above Monday's Asian session high at 79.18 is required to question the bearish USD outlook, opening 79.27 and potentially the range high at 79.60. |
| Support at 1.0583 is being challenged, which is the last line of defence protecting the July 12 reaction low at 1.0525. Failure to keep 1.0525 intact would leave the July 14 reaction high at 1.0804 as a bull failure, and create room for further weakness towards the June 27 reaction low at 1.0391. Regaining ground above 1.0677 is required to lift the tone, opening 1.0743. |
| It's an unappetizing choice but, supposing you had to make it, which would you rather be? According to the rules of this little game you can be one of the dollar's guardians, wrangling in Washington over a deal to reduce the U.S.'s gargantuan deficit and get the Federal debt ceiling raised. If that doesn't appeal then you have to be one of the euro's, bound for yet another Brussels summit Thursday on the future of Greece and its infection of larger euro-users such as Italy and Spain. Now no one could blame you for fancying neither option. The world's two major reserve currencies are trapped in a debt-sodden 'ugly contest' which has left foreign exchange markets with few better ideas than to dump them both, where possible, and buy the Swiss franc instead. The dollar and the euro make record lows against the Swissie on a daily basis now, and certainly have already this morning. Shoring up confidence in either is going to take something like a miracle. However, it's still likely that the dollar will wind up looking the least hideous. The euro's guardians have to stabilize Greece [again], cure the contagion that gets the peripheral nations hammered in the bond markets and then, when both Herculean labors are complete, come up with a credible way for the euro-zone nations to live together in the future. Oh, and then they have to sell that said idea to deeply skeptical markets. By comparison, 'all' the U.S. lawmakers have to do is get on and raise the debt ceiling. Now, this wouldn't be the end of the dollar's problems by any means. The credit-rating agency Standard & Poor's said just last week that the U.S. seat at the 'triple-A nations' club could be at risk even if [when] a deal is done. But the foreign-exchange markets have selective hearing, and if they hear that the debt ceiling is raised it will be a while before they concentrate on anything else, a while in which the dollar could see a massive relief rally. |
| The euro held above $1.40 in European foreign exchange trade Monday as the focus switched to an emergency summit of euro-zone leaders scheduled for Thursday, having drifted down in the wake of Friday's euro-zone bank stress test results. The examinations didn't test banks for the possibility of a sovereign debt default and that has left markets nervous ahead of the long-awaited summit, with pressure mounting for a new Greek bailout agreement that avoids a default and stems the growing contagion to other indebted parts of the region. Reflecting the jitters, the costs of insuring the sovereign debt of Italy, Spain, Ireland, Portugal and Greece all shot high, while funds seeking the safety of Switzerland drove the franc to new highs against the dollar and euro in Asian trading. The price of gold, meanwhile, also soared to a new peak. Analysts don't see much scope for the euro to rise unless there are signs of progress on a solution for Greece at Thursday's summit. "It is going to be volatile until the summit and the news flow and headlines are going to have an impact," said You-Na Park, a Frankfurt-based strategist at Commerzbank. She noted that the euro may be in for a tough ride if euro-zone politicians again choose to air discordant views. Holding out for a solution just yet may be premature, analysts at BNP Paribas said in research note. After all, Germany's Angela Merkel made it clear over the weekend that she won't attend the summit unless she thinks there is the makings of a deal, they said. The Germans have been at the forefront of calls for more private sector participation in any Greek debt rollover. |
| The Swiss franc hit record highs against the euro and the dollar Monday in Asia and the yen gained as investors remained cautious about the euro zone's festering debt crisis in a session thinned by a Tokyo holiday. Attention was already turning to a Thursday meeting of European leaders aimed at stemming Greece's woes. This sapped any strength the euro picked up Friday, when far more European banks than expected passed "stress tests" of their financial strength. Asian currencies were generally weaker against the dollar on risk aversion, with most regional stock markets lower. Currency investors had no directional cue from Japan, where markets were closed for Marine Day. Only nine banks didn't pass the European Banking Authority tests: eight flunked and a German lender pulled out of the exercise, compared with expectations that as many as 20 might fail. But the numbers didn't inspire confidence because of skepticism over the tests' assumptions: for example, that Spanish unemployment will edge up just 1.1 percentage point through next year and that neither Greece nor Portugal will default. Asia-Pacific currencies have remained fairly stable even as near-daily warnings on euro-zone debt have whiplashed the common currency and as two ratings agencies last week stung the U.S. with the threat of a credit downgrade. But that could change if markets begin to see the fiscal instability in Europe and the U.S. hurting global growth, says Emmanuel Ng, currency economist at Overseas-Chinese Banking Corp. "Commodity-linked currencies have lost a little of their conviction," he said. "The Aussie dollar has hit a glass ceiling three times in the past two weeks, it may be looking for an easy way down." The safe-haven Swissie has benefited from the market angst. The euro fell to a record low CHF1.1365, according to EBS, in early Asia trade Monday. At 0628 GMT it had recovered to CHF1.1428. The dollar hit an all-time low CHF0.8034 before rebounding to CHF0.8129. There's no end in sight for the Swissie's rise, said currency strategist Robert Ryan of BNP Paribas. |
| European banks did better than expected in stress -test results released Friday, but the euro couldn't gain any momentum due to the strain of the euro-zone debt crisis. A mere nine banks out of 90 top lenders in Europe flunked the tests for a worst-case economic scenario, with a combined shortfall of EUR2.5 billion in capital. Investors had speculated that upward to 20 banks would fail the tests, analysts said. The euro momentarily leapt against the dollar after the results, but later reversed those gains to exit nearly flat on the day. Against the Swiss franc, the common currency neared fresh all-time lows late Friday. "There is still an overhang of euro bearishness in the market," said Ron Leven, currency strategist with Morgan Stanley. Investors are still short euros, though not aggressively, he added. Market participants remain wary of the common currency as they await details of the still-elusive second bailout of debt-laden Greece. That's the topic of next week's euro-zone summit. Late Friday, the euro was at $1.4150 from 1.4142 late Thursday, according to EBS via CQG. The dollar was at Y79.14 from Y79.14, while the euro was at Y112.00 from Y111.90. The U.K. pound was at $1.6131 from $1.6136. The dollar was at CHF0.8151 from CHF0.8161. The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at about 75.151 from about 75.253. But the dollar is far from a favored alternative for investors, as the contentious debate on lifting the U.S. debt ceiling continues. Concerns about the dollar and euro have left investors with little conviction to place bets on either currency, analysts said. "A lot of people, after having fought to a draw this week, have pulled back onto the sidelines," Brian Dolan, chief currency strategist at Forex.com in Bedminster, N.J. "We're waiting basically to see how things play out." |
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