IG Markets Forex Thoughts

IG Markets Forex Thoughts

EURUSD

During Asian trade, EUR/USD moved between 1.4177 and 1.4144, as participants speculated what the next move in the pair will be. All eyes are firmly focused on Thursday’s EU meeting, plus Reuters are reporting that French President Mr Sarkozy will meet German Chancellor Angela Merkel to discuss the much anticipated aid package prior to the meeting. This is certainly a positive, because as of a few days ago, the German Chancellor’s presence at the EU meeting was not guaranteed. Her comments overnight that markets should not expect a single and final solution to make the Greek crisis disappear are probably a sobering reflection of how hopeful traders are going into this meeting. We were once again encouraged to see Spain successfully raise 4.5 billion euros in the private market, with a descent bid/cover ratio, and all in all with sovereign spreads and CDS contracting, it seems it is not all doom and gloom. Looking at the price action though, we really don’t expect any sort of extension beyond the recent ranges until after Thursday, so we are watching 1.43 (50/100-day moving average), 1.4015 and 1.3916 (200-day moving average) to the downside.

USDJPY

Overnight, we saw optimism flow through risk assets and US treasuries on hopes of a breakthrough in the debt ceiling talks. President Obama raised expectations of a reasonable debt reduction plan by warming to the ‘Gang of Six’ (Bipartisan senators) plan to cut $3.5-3.7 trillion off the deficit over ten years. Importantly, the US house Republican Leader, Mr Cantor, said the plan included some constructive ideas. However, for it to really gain traction we will need to see more house Republicans warm to it; the market will pay close attention to any views that are reported tonight. The buying we saw in thirty-year treasuries was testament to the relief that both parties are making a concerted effort to push through an agreement. Economic data was also extremely positive, with both building permits and housing starts rising and importantly beating expectations. Tonight we see the release of US mortgage approvals; however this is highly unlikely to provide much of a catalyst. With USD/JPY moving between 79.08 and 79.32 in Asian trade, it seems that short-term price drivers will invariably come from any official’s narrative on the debt ceiling debate; any positive comments from Republicans will see the USD push higher on the session.

AUDUSD

Despite yesterday’s more dovish meeting minutes from the Reserve Bank of Australia, AUD/USD pushed sharply overnight as improving risk appetite across all asset classes saw traders buying the commodity-driven risk currency. From yesterday’s low of 1.0596, AUD/USD rallied more than 100 pips to hit a high of 1.0739, before closing the session slightly weaker at 1.0729. The recent jump has been purely driven by risk, as rate hike expectations have been pushed back across the board recently and the RBA said yesterday that 2011 GDP growth was unlikely to be as strong as expected. From a technical perspective, the last few months have printed a bullish inverted head and shoulders reversal pattern in AUD/USD. The neckline sits around the 1.08 level, so a decisive break up through here would likely signal another move higher and a re-test of May’s 1.1010 all-time high. It’s currently trading at 1.0715.

GBPUSD

In overnight action, sterling recovered all of yesterday’s losses, as a sharp pick-up in ‘risk appetite’ boosted equities and risk currencies across the board. Cable rallied from a low of 1.6019, to a high of 1.6176, before closing the session at 1.6121. This occurred as US housing data and Q2 earnings came in stronger-than-expected and President Obama said that debt ceiling talks were making progress. From a technical perspective, sterling looks range bound between yesterday’s low of 1.6003 and today’s high heading into tonight’s MPC monetary policy meeting minutes. Over the last week or so, gains have been capped by selling resistance around the 1.6150 level, which probably coincides with the dovish expectations for tonight’s data. As it stands, the market is expecting a 7-2 vote on a rate hike, but an 8-1 vote on new asset purchases. However, there is the very real possibility that we could see more votes in favour of further asset purchases, which would be negative for sterling. Nonetheless, it’s certain to cause some volatility among traders.

ENDS

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