EUR/USD: The euro has completed its correction and is now on its way up with market attention fixed on the likely appointment of Don Evans succeeding TreasySec. John Snow. While Snow was seen as trying his best in order to prevent protectionism, the opposite seems to be the case in respect of Don Evans. Evans is seen as close to US business and a ‘weak USD policy’ has always been seen as an option. The Times correctly points out that the USD tended to weaken when non-Wall Street guys were running the Treasury. Snow’s predecessor Paul O’Neil is still remembered as providing little resistance to the USD slide witnessed 2002 till the end of his term. Having breached the $1.2840 resistance, we expect the EUR to push towards heavy resistance line at 1.2895 to 1.2920 where some position trimming of long euro positions established since last week’s low of 1.2740 is suggested. Break of 1.2970 in intra-day trading and 1.2930 on a New York closing basis will be extremely positive for the euro targeting a move to 1.3080 as a minimum. In the event of a NY close above 1.3080 and a clear intra-day break, add to euro longs since that will indicate more gains are in store for new target of 1.3240 to 1.3480. On the downside, the 1.2700 level is seen as the near term bottom and is expected to hold.
USD/CHF: We expect the FOMC minutes to signal that a pause is a more likely scenario than a hike, allowing the USD to resume its recent downtrend. In Switzerland, the KoF indicator is released today. Markets are expecting an improvement from April that should aid the CHF. SNB’s Roth sounded optimism over the 2007 economic outlook saying that a slowdown was not a major risk factor. Break of 1.2010 and then 1.1920 is required to open the way for a move to 1.1800, then the April ‘05 low of 1.1740.
USD/JPY: The USD is prone to downside risks this week through the release of the FOMC minutes but also other external events such as the replacement of Treasury Secretary Snow by ex Commerce Ministry Don Evans and the upcoming G8 meeting. Expect a test of the support area of 108.60 to 109.40 soon.
GBP/USD: We would see pullbacks in GBP/USD as a good buying opportunity but a move above the double top of 1.8890 will be needed to confirm a corrective bottom is in place and following a break of 1.9000 indicate more gains for sterling towards 1.9180 subject to a clear break above 1.9060. On the downside, first decent support is seen at 1.8540 to 1.8510, below which the way will be open for a move to 1.8380.
Disclaimer: The recommendations on this page are for indication purposes only and the Financial Mirror does not take any responsibility for investment action taken on the above. Always consult a professional before investing.
