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Currencies Seen Retesting Key October Lows Over Coming Days

Published: 14:36 16 Nov 2011 GMT

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  • Italian yields back above 7%; highly concerning
  • Weaker auctions from Spain and Belgium not helping
  • Canada’s Flaherty warns of risks from Eurozone crisis
  • Talk of downgrades to French banks and France
  • BOJ leaves rates on hold; lowers economic assessment
  • US Dollar finding additional bids on solid local data

 

The push back above 7% in Italian yields has not sat well with investors and this in conjunction with disappointing auctions in Spain and Belgium and concerning German ZEW data (economic sentiment at 3 year low), has opened the door for yet another round of broad based risk liquidation with the Euro tumbling below key short -term support at 1.3480. Also weighing on sentiment have been rumors of downgrades to French banks and to France itself, along with generally downbeat comments from Canada’s Flaherty on the potential risks to the global economy resulting from the Eurozone crisis. All major currencies remain under pressure against the safe-haven US Dollar, which at the same time has been finding some additional bids on its own merits following a solid retail sales print in the US on Tuesday. We now see room for most of the major currencies to retest their October lows over the coming days.

 

The higher yielding commodity currencies are the hardest hit of the bunch, with the risk liquidation exposing the Australian and New Zealand Dollars in particular. The Australian Dollar is now on the verge of a break back below parity against the buck and has found some additional offers on some softer overnight data. Elsewhere, the Bank of Japan left rates on hold at 0-0.10% as widely expected but also lowered its economic assessment. Looking ahead, Italian CPI, UK employment, Eurozone CPI and the Bank of England Inflation report are all due in European trade. US equity futures and commodities are tracking a good deal lower on the day thus far. On the official circuit, Fed Rosengren, Fed Lacker and EU Van Rompuy are all slated to speak.

 

ECONOMIC CALENDAR

 

 

Opening_Comment_body_Picture_5.png, Currencies Seen Retesting Key October Lows Over Coming Days

 

TECHNICAL OUTLOOK

 

Opening_Comment_body_eur.png, Currencies Seen Retesting Key October Lows Over Coming Days

EUR/USD: The latest break below 1.3480 should now open a fresh downside extension which ultimately exposes a retest of the key lows from October at 1.3145. Look for any rallies to be well capped below 1.3700, while ultimately, only back above 1.3870 would negate outlook. Once 1.3145 is taken out, it will negate the corrective October price action and should result in a more aggressive bout of selling into the 1.2000’s. We continue to project weakness over the coming weeks into the lower 1.2000’s as per the monthly chart.

 

 

Opening_Comment_body_jpy2.png, Currencies Seen Retesting Key October Lows Over Coming Days

USD/JPY:Although the market has come back under pressure following the recent surge to 79.55, we retain a constructive outlook with the price still holding above the daily Ichimoku cloud. The bottom of the cloud currently comes in just under 77.00 and so long as the market holds above the bottom of the cloud on a daily close basis, we continue to recommend looking to be long this market in anticipation of a more significant bullish trend shift from record lows. A close back below 76.80 would however give reason for concern.

Opening_Comment_body_gbp2.png, Currencies Seen Retesting Key October Lows Over Coming Days

GBP/USD: The latest daily close below 1.5870 confirms our bearish outlook and should now open the door for a bearish resumption back towards the key October lows at 1.5270 over the coming days. Next key support comes in at 1.5630, while any intraday rallies are expected to be very well capped below 1.6000.

 

Opening_Comment_body_swiss1.png, Currencies Seen Retesting Key October Lows Over Coming Days

USD/CHF: The pair looks like it is in the process of carving a major base ahead of some significant upside over the coming weeks and months. The latest rally seems to be gaining momentum, and we anticipate that the market will soon clear the key October highs at 0.9315. Above 0.9315 should then accelerate gains and open the Next major upside extension towards parity. Any setbacks from here should be very well supported above 0.8900.

 

 

 

--- Written by Joel Kruger, Technical Currency Strategist

 

To contact Joel Kruger, email jskruger@dailyfx.com. Follow me on Twitter @JoelKruger

 

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