26th November Euro/USD Overview
26th November 2009
Currency Overview
Focus on Spot EUR/USD (Euro)
Having been range-bound between the 1.4800 and 1.5000 handles in the last 2 weeks, the market broke higher yesterday to trade up to the 1.5100 handle on the back of renewed USD weakness after the FOMC meeting minutes on Tuesday.
Thoughts from the trading floor
The Euro powered through the 1.5000 handle yesterday, and is now delicately poised. A close above 1.5063 and clear break above 1.5084 would pave the way for a swift move up towards the 1.5285 to 1.5365 resistance area. A technical failure to hold a close above these high prints may mark a “blow out top”, triggering a liquidation of longs and may be a catalyst for an extended medium term down-trend for the market. Although with the market so intimately linked with risk appetite, we may have to see a broad reversal in risk appetite for this bearish scenario to occur.
Tuesday’s FOMC minutes meeting effectively green-lighted market participants to continue to sell the USD, as a pertinent statement in the minutes report revealed that the Fed members believed that the USD sell-off in recent months has been “orderly” dispelling any fears that they may act to stem the sell-off. This has also acted as a catalyst for further “risk-on” trades as carry trades rallied sparking a bid in equity markets in yesterday’s European morning. Although rumours out of the IMF suggested that they may advise European Finance ministers that the level of the Euro against the USD is too high. This caused a very brief sell-off from the 1.5100 highs, although it remains unclear how the IMF and European Finance ministers can act to stem the rise of the Euro. It would most likely take a global intervention in the USD to stem its fall, and thus the likelihood of all of Europe and then the rest of the world to act in unison to do this seems a distant probability. In the absence of FOMC monetary tightening and global intervention in the USD, in the short-term, it would seem as though a close above the 1.5063 level may spark a new leg higher in the Euro towards the 1.5300 handle.
Bull View
The bulls will take heart from the FOMC’s actions attempt to take out the 1.5100 handle initially for a move towards 1.5300. With gold continuing to make all time highs, it would seem as though there is no end in sight for the short USD trade, especially given that the market has had bouts of healthy short-term corrections on the way.
Bear View
The bears will see the current trend of USD weakness resulting in higher equity and commodity prices as a new bubble in the making. They may wait for weak USD bulls to throw in the towel before staging a comeback, which we may be in the process of seeing currently. The bears may have to wait for the big blow out top in the Euro before they can enter in force. Although it remains imperative that overall market sentiment starts to shift.
Futex View
We favour the current market trend to be a “bubble” waiting to burst. We back the bears in the long term and may have to wait for the blow out top in the Euro. This technical event would most likely come before a turn in sentiment across broader “risk-on trades” and other news events, as we have seen in the past, and therefore remain ready to be aggressive with shorts if this occurs.
