The euro remains under pressure and a move towards the 1.2510 level cannot be ruled out. Near-term USD support should continue especially with Fed officials talking tough on inflation. This puts the focus very much on today’s CPI release expected at 0.4%. Given the heavy long positioning of the market, even a better than expected number might have only a modest impact on EUR/USD. For the week ending 6th June, IMM spec net long positions in the EUR extended from 82.884 contracts o 88.196. In fact, total (or gross) long positions broke above 100k. This implies that corrections in EUR/USD are likely to be larger than other currencies given an easing in their net long positions. Nonetheless, we would see dips towards the 1.2510 and then 1.2470 levels as a good buying opportunity. Only a break below 1.2420 would worry, opening the prospect of a dive to 1.2340. On the upside, need a break above 1.2760 to confirm that a bottom is in place and signal a move to 1.2980, then 1.3170.
USD/JPY: The dollar remains well bid as Fed speak once again showed the central bank’s inflation concern. A break above 114.55, then the double top at 114.75 should open the way for a move to 115.60, but we believe that levels at 114.55/75 are already over-stretched and technically should not break. On the downside, any time a break below 113.50 occurs, then take it as a signal that a deeper move to 111.85 is in the cards.
USD/CHF: FDI news has moved into focus on news that Credit Suisse has entered into exclusive talks with Axa over the possible sale of its insurance arm Winterthur, valued at EUR 7-7.7 bln. The flows have forced a break of key technical support around current 1.5550, and thus are sure to draw in further supply from short term model funds. Further CHF support should arise from further equity liquidation and investors moving into safe assets suggesting EUR/CHF will remain under pressure. However, USDCHF should remain bid for now as the US interest outlook dominates market activity. The latest IMM report showed a substantial divergence between CHF longs running only at 9k compared to EUR longs rising to a record of 88k. The SNB is expected to hike rates by 25bps to 1.50% on Thursday. However, the risk of a 50bps move should not be dismissed. In the case the SNB hiking by 50bps on Thursday we expect EUR/CHF to collapse to 1.52.
GBP/USD: Sterling remains under pressure irrespective of higher than expected UK data Monday. The softness of Cable is related to the stronger USD with Fed talk continuing to be on the hawkish side. If the 1.8365 to 1.8315 support is seen and holds, then expect a rebound to 1.8610 but the critical res. remains 1.8740, which needs to break in order to confirm that a bottom is in place and a bull rally is to start.
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.
