Royal Bank of Scotland:
EUR/USD
The near term outlook is
negative, with local resistance at
1.2835/55 expected to cap any
corrective rallies and pressure
price initially lower towards the
1.2730/10 support zone (early
February low and 50%
retracment of the April to
December ?04 rally). The
interweek outlook is also
negative, with a subsequent
failure (weekly close) of the
1.2710 support expected to fuel
an extension of the current down
leg towards 1.2580 then the
more significant 1.2380 level
(minimum 23.6% retracement of
the 2000 to 2004 uptrend).
Saxo-Bank:
THEMES TO WATCH ? UPCOMING SESSION
Bernanke's speech on the Current Account turned out to be reheated left-overs last night and offered nothing new to go on from the last time he gave this speech. It's hard to fathom that these Fed officials believe that this huge US current account problem will simply resolve itself.
The movement of the currency markets vis-a-vis other markets (stocks and bonds) is always important, and the latest action suggests that the fall in stock markets (on earnings woes and therefore a fear that economic growth may be slowing) favors the US Dollar - something that is the opposite of past market paradigms. The possible reason for this is that emerging markets have been extraordinarily popular with funds over the last year and more - and this required managers to move huge flows abroad - and therefore sell the USD, as the assumption has been that if we are seeing a global recovery, then the emerging markets will offer the best growth rates. If the fear now is that the global recovery is in jeopardy (which we very much believe), then the repatriation of USD as the market reigns in its investments abroad could continue to drive the USD stronger still. Also, the perception of a failing recovery makes the relatively high yield of US treasuries vs. those of Europe and Japan rather attractive (though those yields are starting to fall rapidly).
(interessant...)
So, if the market flows as described above are the reason behind the USD strength (and this isn't just a "front-run Warren Buffet dumping his short USD position" phenomenon - a flimsy rumor if you ask me), then the greenback could remain strong for some time. But at some point, these flows could slow and we still have the huge US current account overhang lurking in the background that must be dealt with at some point and requires a massive adjustment weaker in the USD. Timing is everything, and I'll keep my eyes peeled for a reversal, as I still prefer the USD weaker, even if the technical model tells me to trade the USD stronger for now. The TIC data today at 13:00 may not really move the market, unless it's a real shocker.
The only support left in EUR/USD is the 1.2735 area low from early February. A failure of that level could theoretically bring 1.2500 into play, though we'll hold off on the projections until that level falls. If we're to look for reversals at this point, then we should focus on the 1.2850 level - as a close above that level would offer some hope for action higher still (though we rate the odds low for this development at this point). Meanwhile, resistance comes in at 1.2830.
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