Negative news at week start escalates risk aversion
Weekend news and events soured risk sentiment at this week’s open and throughout Monday’s trading. Much of the negativity came from Euro Zone related concerns. The Spanish ruling party suffered great losses in regional elections last Sunday. While Italy was unexpectedly placed on a negative outlook by Standard & Poor’s, although its long term credit rating was still maintained at A+. Lastly but definitely not least the Greek situation continued to escalate as media reports reported that Greece had just enough cash to go through till the coming July 18th and that the IMF suspended its quarterly review until more austerity and privatization plans were drawn up. In addition more volcanic eruptions were reported in Iceland.
Euro Zone Data and risk aversion weigh on the Euro
Data out of the Euro Zone was slightly disappointing earlier this week - the PMI numbers released were flash figures for the month of May from the Euro Zone, France and Germany. Actual figures were lower than previous figures and for most of the cases even below expectations. The lower than expected EZ PMI figures raised questions about the prospects and resilience of economic growth. However the French Services sector in particular managed to show resilience as figures reported where only marginally lower than the previous figures and in fact the actual figure reported of 62.8 managed to beat the expected 62.1.
The escalating risk aversion sent the EUR/USD tumbling lower, and the price traded for the currency pair broke below the 1.4000 levels for the first time in nearly two months. Despite the interest rate differentials that have given support to the Euro, when compared to the US Dollar – the escalating debt concerns kept haunting support for the Euro. Traders reported bids for the single currency by Asian central banks and it was these bids that probably helped to halt the EUR/USD’s descent.
Even against the CHF the Euro suffered substantial losses the EUR/CHF recorded new lows below the 1.2400 level and the pair went as low as 1.2324. The turmoil over Euro Zone debt concerns contrasted against the Swissie’s safe haven appeal. The CHF strength eased slightly the following day after SNB Vice Chairman Jordan comments revealed concerns that Swiss franc strength risked triggering deflationary pressures; however he added that so far the export sector remained resilient, but the SNB would act if these deflationary risks were to materialize.
Last Tuesday Euro selling saw some easing and the Euro managed to limit its losses even though credit rating agency Fitch affirmed Belgium’s credit rating at AA+ but lowered its outlook to negative.
Looking ahead - the EUR/USD
On a daily time frame Elliott studies are suggestive of a continuation of this correction lower in the near term and even if the EUR/USD has up to the time of writing been held by support at the 100-day moving average at 1.3969, we could be in for a move towards or in the region of the 200-day moving average at 1.3678.
The GBP remains weak for the former part of the week
The British Pound remained weak in the former part of the week even if Euro weakness on Monday sent the pair towards daily lows of 0.8664. In the former part of the week the GBP was down 0.37 percent against the rest of the majors.
UK data released in the latter part of last week saw the claimant count for the month of April rising drastically higher to 12’400 from previous 700 and an expected no change. Despite this data the ILO unemployment rate for the month of March however managed to inch slightly lower to 7.7 percent from previous and expected 7.8 percent. April retail sales were good and actual figures managed to beat the forecasts.
Our RTFX Trader Tip (EUR/GBP) envisages a correction lower to possibly 0.8633 throughout this week, but warns that given the technical setup of the price trading. Market could break side, earmarking 0.8845 and 0.8682, as possible points of acceleration if these levels are clearly breached.
Antipodean currencies recover week start losses
Despite a sell off during the Monday session, the antipodean currencies, namely the AUD and the NZD managed to stage a recovery throughout the Tuesday session – after the losses incurred the previous day. On Monday the escalating risk aversion caused investors to cut those positions perceived as riskier, and the Aussie and the Kiwi were at the losing end. The NZD in particular managed total gains of around 7 percent against the majors on the back of higher than expected figures for RBNZ’s two-year inflation expectations.
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