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FX Morning update - US dollar pulls back from its recent lows in Asia

By Michael Hewson

Date: Monday 15 Mar 2010

FX Morning update - US dollar pulls back from its recent lows in Asia

Speculation has continued over the weekend about the creation of some sort of bail-out package for Greece as euro zone states struggle to put together measures that won’t break EU rules about bailing out member states.

Meanwhile there is concern in some circles that China and the US are on a collision course with respect to the value of the Yuan with Chinese premier Wen Jiabao reiterating the view that he saw no problem with the Yuan’s value and suggested that the US spend more time worrying about taking “concrete steps to reassure investors” about the safety of dollar assets and the US fiscal deficit.

Some US senators are proposing imposing tariffs on Chinese imports to compensate for the unfair export advantage they say comes from an undervalued currency. There is also concern among investors that China will take further steps to rein back on stimulus measures in an attempt to slow down the speed of its economy.

This speculation about a package of some description has underpinned the Euro over the past few days along with better economic data, last weeks release of euro zone industrial production figures showed the strongest monthly gain on record in January, providing some welcome good news for the region, and pushing the single currency up through its recent range highs and up against resistance in the 1.3770/80 area.

European Union statistics agency Eurostat said industrial production across the 16-nation euro zone spiked to a better-than-expected 1.7% in January. Analysts were looking for a 0.7% monthly gain. On an annual basis, industrial production rose 1.4%, compared with December's upwardly revised 4.1% fall.

Sterling will continue to be overshadowed by fluctuating opinion polls and fears about its credit rating, as politicians from opposing parties continue to argue about spending cuts to rein in the deficit and when they should start.
US economic data also provided a fillip to risk appetite as retail sales data for February came in markedly better than expectations at 0.3% against an expectation of -0.2%.
The yen weakened against the dollar after the data, pushing back from support at 90.20 with the market seemingly reluctant to test the BoJ's resolve with respect to a stronger yen.

EURUSD - the Euro traded up through its recent range highs at 1.3710/20 after Friday’s positive industrial production data, making a high of 1.3795. The channel line resistance from the 1.5145 highs continues to keep a cap on the market with the resistance now at 1.3780 which has so far been difficult to crack. A close above 1.3800 could well precipitate a move towards 1.4000.
The old range highs should now act as some sort of support around 1.3720, while a break below 1.3700 re-targets 1.3620. The key downside support remains at 1.3485 on a daily close, with interim support around 1.3710/20.

GBPUSD – the slide back in the dollar at the end of last week has seen the pound stage a remarkable comeback breaking above both resistances at 1.5080 and 1.5130 late on Friday. The break above the next resistance around late Friday 1.5200 was not sustained, and as such we could see continued pressure on the downside, but a break and close above 1.5200 could well target 1.5330.
The key downside level on the cable remains at 1.4850, the 61.8% retracement of the up move from 1.3500 to the highs at 1.7045. A break below here would re-target 1.4400, the 22nd April 2009 lows.

EURGBP - We remain stuck in a range here with the November and December 2009 highs at 0.9150 are the key barriers to further Euro upside here. Last week’s rally stalled at this level, and remains the key barrier to further sterling losses. Euro dips should find some buyers around 0.8980 and 0.9020.

USDJPY - the yen failed just short of resistance at 91.15 late last week, before slipping back below the 90.80 area. The key resistance level remains at the 200 day MA at 91.85.
Fears of possible Bank of Japan intervention and stronger US data, has seen the dollar bounce off the support at 90.20. Yen repatriation ahead of the financial year end could well cap any upside in the dollar in the short term in any case.

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