The euro recovered strongly from the 1.2695 double bottom level and easily climbed above 1.2840 implying that there is a good potential to test near term res. at 1.2920, according to Financial Mirror analysis.
A sustained break above here suggests that the recent corrective pullback is complete and that the up trend will be extended through 1.2970 targeting 1.3070.
The EUR gained support from hawkish comments by ECB’s Bini Smaghi who noted that a spectacular rise in mortgage debt within the eurozone suggests that the low level of interest rates has encouraged homeowners to take on more debt and risk, BNP Paribas reported in an analysis.
The rise in EUR/USD was also related to petrodollar accounts selling USDs. This suggests that a floor is placed on EUR/USD. Nonetheless, there could be another dip back to 1.2700 if the German Ifo disappoints. This should quell those expecting a 50bp hike in June. Second, the US yield curve has flattened which should prove to be a USD supportive factor in the near-term. Our strategy is to take profit on rally to 1.2920/70, but reinstate above 1.2970 for 1.3070. On the downside, if you get out at 1.2920, look to go long again on dip to 1.2790, otherwise wait for another market shake to pick up euros near 1.2700.
USD/JPY: The JPY rallied on the back of the S&P rating upgrade but significant moves lower will be hard in USD/JPY given the flattening US yield curve and continued signs of stress within commodities and equity markets. Volatility and risk aversion have pushed higher suggesting that the market might want to move towards safer-havens, such as US Treasuries.
USD/CHF: The break of 1.2080 support opens potential to 1.2000 and then 1.1960. However, we do not expect the USD to resume its medium-term downtrend yet. Instead a period of range trading should be expected with levels near 1.1960 offering a tactical USD long trading opportunity. Nervousness in the market should also help in providing some support for the USD, near-term. On the other hand, a break below 1.1960 will open the way for a move to 1.1880, then 1.1740.
GBP/USD: Cable rebound from 1.8630 breaking above resistance at 1.8790. The technical picture implies gains towards the 1.9000, but a sustained break above this could prove tough, unless UK economic news such as Q1 business investment and GDP growth support the case for higher rates, which would support GBP and allow it to break higher above 1.9045. On the downside, if the 1.9000 fails to break, brace for renewed weakness to 1.8620.
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.
