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FX Morning update - US dollar slips back in Asia

By Michael Hewson

Date: Friday 26 Feb 2010

FX Morning update - US dollar slips back in Asia

Yesterday’s poor weekly jobless data out of the US sent the dollar higher initially, but it started to slip back in late US trading after re-testing its recent highs. Claims had come in near to 500,000 and their highest level since early November last year as fears over future job creation weighed on sentiment.

Coming on top of the poor data earlier this week, and sovereign debt concerns in Europe, the markets are today looking nervously towards the revisions in US and UK Q4 GDP data for some comfort, as risk aversion continues to weigh on the market as we head into month end.

Sterling has also seen significant weakness over the past 24 hours weighed down by a number of factors, both fundamental and technical, including a fall in business investment by 5.8pc in the fourth quarter of 2009, which sparked fears that today’s Q4 GDP revision may not show an upward revision as the market expects. The upward revision is expected to be in the region of another 0.1% to 0.2%.

The US GDP revision is also due out this afternoon but that is expected to be unchanged at 5.7%, but any negative deviations away from these GDP expectations would not sit well with the markets and could cause further risk aversion.

Sterling was also hurt by the assertion that further QE could not be ruled out, and the news that the European Commission was downgrading its growth forecasts for the UK to 0.6% for the whole of 2010 in stark contrast to the UK government’s estimates of 1.25%. The pound hit 11 month lows against the yen, and 9 month lows against the dollar.

EURUSD – the Euro continues to be weighed down by weak economic data, sovereign debt concerns and heightened tensions between Greece and Germany after rather inflammatory comments by the deputy Prime Minister of Greece. Greece now plans to issue a 10 year bond next week after the announcement of a new austerity package.
The Euro has managed to hold above its previous lows last week around 1.3450 for now, but the lack of any real bounce would seem to suggest that it is only a matter of time before we slip towards 1.3200. Only a move above 1.3640 would delay this scenario from unfolding.

GBPUSD – the pound has continued its declines, hitting a 9 month low against the dollar and an 11 month low against the yen over sovereign debt concerns, and dovish rhetoric from the Bank of England.
The 1.5270 level 50% Fibonacci level was breached yesterday, the pound falling to trend line support from the 1.3500 lows, at 1.5185/90 before rebounding. We can expect to find resistance around the 1.5350 area which were last weeks lows. Any break above this level would re-target 1.5470.

EURGBP – the Euro broke and closed above the 200 day MA and also trend line resistance from the 0.9410 October 2009 highs at 0.8840. It has gone on to test 0.8890 pull back line resistance from the November 2009 lows. A break here would go on to target 0.8930, while the Euro stays above 0.8840.

USDJPY – continued risk aversion has seen the yen continue to strengthen throughout the last 24 hours, breaking below the cloud support at 89.30 and heading towards the February lows at 88.50/60. Yesterday’s close below the support at 89.30 re-targets the risk of fresh downside and the 88.25 level which is 61.8% retracement of the up move from the November lows of 84.80 to the peaks at 93.75. A move above 90.30 would stabilise.

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