Mike Paterson’s daily Forex brief

What doesn’t go back up has to come down further and this has been the Euro story so far this week as the markets react with less and less enthusiasm to the EU fiscal union proposals, which may, anyway, be illegal to introduce under a new treaty without the UK according to EU President Van Rompuy.

Initially after Friday we saw muted reaction but, as I said at the time, the fact that the Euro didn’t rally too far suggested that markets were less than impressed this time around, but whatever sense of complacency hedge funds and real money managers may have had was relatively well placed when we didn’t come down in a rush either.

But they were rudely awakened yesterday when major technical supports on EURUSD fell like a knife through butter. 1.3145 was the first level to give way, the October lows, followed by 1.3045, the 61.8% Fibonacci retracement of the 1.1870/1.4940 rally.

The heaviest wave of selling came late in the European session, close enough to the 16:00 GMT fixing to conclude that much of the selling was of the real-money variety, as investment managers gave EZ the cold shoulder. An unexpectedly strong US 10-year note auction helped confirm those suspicions as investors are clearly looking for places to hide outside of the Eurozone and finding few safe-havens and further supported by the US Fed keeping interest rates on hold and offering no hint of further QE, with a mildly upbeat assessment of the US economy.

The continued slump in Gold is a safe-haven case in point, with slowing Chinese and European growth combining with the stronger dollar to cut demand for the precious stuff and associated currencies such as Aussie $ and Rand. Falling oil prices as demand subsides are also taking its toll on currencies such as the Canadian $.

Anyhow, we’ve seen a drop to 1.3004 on EURUSD but there is talk of large order to buy around 1.2995 and this is stemming the fall for the moment but there’s little sign of a rally which in any case will meet sellers not far away at 1.3050. Behind that 1.3145 remains the other key level with funds and traders alike queuing up to sell having missed it yesterday

Forex Brief Wed

FX Update

EURGBP continued to fall and overnight we saw option-related support at 0.8400 (GBPEUR resistance) taken out and lows of 0.8392 seen before a small rally as EURUSD came to a grinding halt. EURCHF fell too, at one point dipping below 1.2300 but traders still running a little scared ahead of any SNB action to raise the peg.

Overall the Pound seems to be avoiding any direct hits still and is generally doing ok. For the moment at least. UK unemployment data just out was marginally better than expected but we’ve seen little positive reaction.

As a trader for many years I’m always cautious when every man and his dog starts to talk the same book and that’s what we’re getting now on the Euro. Whilst this move down is totally justified FX markets are the most fickle and with year-end approaching, and the associated book-balancing to be done, I for one wouldn’t bet against some sort of sustained rally sometime soon, if only to set up a greater fall afterwards.

And talking of rapid falls let’s hope that the mighty Shrimpers can stop their own decline after last night’s FA Cup defeat with 10 men put paid to their chances of glory at Anfield in the next round and that now means 3 defeats in a row and losing their top of the table position. All the thrills of following League 2 football!

Today's Data:

09.30-UK- Unemployment Rate / Claimant Count

10.00-EU- Eurozone Industrial Production

13.30-US- Import Price Index

Interbank Rates as of 08:38 BST

Current Price

Overnight

High

Low

EUR/USD

1.3041

1.3054

1.3004

GBP/USD

1.5514

1.5532

1.5465

EUR/GBP

0.8410

0.8425

0.8392

GBP/EUR

1.1890

1.1918

1.1867

GBP/CHF

1.4661

1.4688

1.4602

GBP/AUD

1.5482

1.5516

1.5433

EUR/CHF

1.2330

1.2336

1.2297

GBP/HKD

12.0280

12.0420

11.9900

EUR/HKD

10.1160

10.1474

10.0604

GBP/ZAR

12.9100

12.9778

12.8536

USD/JPY

77.94

78.05

77.92

GBP/CZK

3.0508

3.0620

3.0387

Agree or disagree? Then please leave a comment in the box below or contact me by e-mail.

Mike ‘Oscar’ Paterson has been in the Forex trenches for nearly three decades working as a senior Spot trader in London at UBS, Chief Dealer FX at the State Bank of Victoria and in charge of Spot CHF at Credit Suisse with a daily turnover in excess of $1.5 billion. Mike now works as an independent consultant providing a fully bespoke service to the corporate and private sectors in physical FX delivery as well as guiding those who wish to improve their currency trading. Mike also presents seminars and workshops and writes for a number of publications.
To contact Mike please call +0044 (0) 1732 700383 or email mike.paterson@economicvoice.com
The views expressed above are those of the author and should not be taken as investment advice. MSP Foreign Exchange Services will have no liability for, or to, any persons executing trades based on the content above.

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