IG Markets - Forex Focus 25/08/10

IG Markets - Forex Focus 25/08/10

EUR/USD

Bloomberg Median Forecasts
Q1 2010 1.39 Q3 2010 1.25
Q2 2010 1.25 Q4 2010 1.24

Commentary
The euro was under continued selling pressure through the European trading day, but has come roaring back following more bad news for the US housing market. Early on, traders showed a negative bias toward the common currency after Industrial New Orders in the euro area fell to a reading of 2.5% for June. This was better than the 1.6% growth rate economists had predicted. However, the drop from May was still substantial and we have to remember that this reporting period took place before austerity measures would have had any impact. With a cloud of uncertainty still looming from sovereign debt concerns and the impact austerity measures may have on future growth, it seems to be difficult for investors to be convincingly bullish on the euro. Even the rapid climb the euro took after a huge drop in US Existing Home Sales ran into resistance before it could best even yesterday’s high level. If the euro can gather steam and make another charge, the zone between yesterday’s high near 1.2730 and 1.2735 would offer some resistance and beyond there the zone between 1.2770 and 1.2790 looks to be fairly strong. If this pair moves back down, today’s low of 1.2587 may offer a modicum of support. But, the zone between 1.2470 and 1.2480 looks to be substantially stronger. Dan Cook, Chicago

GBP/USD

Details
Prev close 1.5512 52 week high 1.6878
Last trade 1.5468 52 week low 1.4231
High 1.5518 Low 1.5373

Bloomberg Median Forecasts
Q1 2010 1.60 Q3 2010 1.53
Q2 2010 1.47 Q4 2010 1.51

Commentary
Sterling was also under pressure during the London trading session, and while it was able to recoup some of the early losses after negative US data weakened the dollar, it still remains well below yesterday’s high. The global theme of the day has revolved around poor economic fundamentals and the story was no different in the UK, with the British Bankers’ Association reporting that Mortgage Approvals fell again in July, this time to 33.7K. This report added to the pressure already being put on the GBP since reaching a top on August 6th. Sterling did get a lift on dollar weakness after the National Association of Realtors reported that Existing Home Sales took a record setting plummet to a mere 3.83 million units on an annualized basis. After a rapid rise, followed by a shallow drop and an elongated pause, the pound is climbing again and is approaching the highs of the session. The area between 1.5475 and 1.550 still looks like it may offer resistance to any further move higher. If this level fails though, a move toward 1.5570 could be in the offing. On any declines, some support could be found at today’s double bottom low near 1.5370 with further support being offered around 1.5325 which is the 38.2% retracement of the move up from May 20 to August 6. Dan Cook, Chicago

USD/CAD

Bloomberg Median Forecasts
Q1 2010 1.05 Q3 2010 1.04
Q2 2010 1.01 Q4 2010 1.04

Commentary
Canadian Retail Sales missed expectations in June by posting only a 0.1% growth reading. Core Retail Sales figures—which do not include automobile—came out even worse, with a contraction figure of 0.5% for the same period. These figures, reported by Statistics Canada, resulted in a weaker loonie which fell to almost 1.0670 versus the US dollar. After what could only be called an abysmal US Existing Home Sales report though, the Canadian currency found its footing and has been able to recoup over 100 pips of its earlier losses. We’ve also seen a bit of a decoupling of the crude oil and CAD correlation with the currency gaining even when oil moved sideways. Part of the reason for this decoupling could be in the strong technical resistance the US dollar ran against today after climbing to within a few pips of the high price points on June 6 and June 30 as well as the highs of July 2nd and July 5th. For the last few months this level has been the upward barrier for this pair and it may hold tough again in the near-term. If the USD can break through this resistance though, it could create quite a large reaction that would not see any further resistance until the zone of 1.0750 to 1.0775. On any move down, the greenback may get some support right around the 1.0500 level. Dan Cook, Chicago

ENDS

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