All Trade Ideas and trading scenarios found on FX360.com are hypothetical. FX360.com has not placed these Ideas in a live trading environment. Forex Trading involves high risks, with the potential for substantial losses that exceed your initial deposit and is not suitable for all persons. Past performance is not necessarily indicative of futures results.

Euro and Pound Diverge in Rollercoaster Trade

Last updated 6/23/2009 5:08 AM EST (GMT -5) 10 Comments

• Share this:

FX360 Technical Analyst Staff

Technical Analyst, GFT

Top Stories

• EZ PMI Services contracts to 44.5 but Manufacturing bounces 42.4
• FOMC starts 2 day meeting
• Asian equities slide -3% , Europe steady
• OIl continues slide to $67.22/bbl
• Gold at $920/oz.

Overnight Eco

• EUR GFK Consumer Sentiment 2.9 vs. 2.5
• EUR EZ PMI Serives 44.5 vs. 45.8 Manufcaturing 42.4 vs. 42.4 eyed
• GBP Mortgage Approvals 31K vs 29.5 eyed

Event Risk on Tap

• USD Existing Home Sales 4.82M eyed
• USD HPI -0.3% expected

Price Action

• USD/JPY slides to 9500 on risk aversion
• AUD/USD loses, but then recovers 7800 as commodity slide weighs
• GBP/USD massive GBP/JPY sales weigh as 1.6200 comes in view
• EUR/USD 1.3800 option barrier protection results in bounce back to 1.3900

It was a rollercoaster night in the currency market with EUR/USD and GBP/USD going their separate ways as eco data remained mixed and equity markets were lower in Asia but steady in Europe. The EUR/USD recovered from its overnight lows of 1.3828 to hit 1.3900 despite decidedly mixed data as defense of reported option barriers near at the 1.3800 figure sparked a short covering rally. Cable meanwhile was sold steadily all night long pressured by the liquidation of GBP/JPY and a rebound in EURGBP. We noted yesterday that “More than any other major, the pound is highly dependent on equity market flows and should global stock markets begin to correct as the summer develops, cable could be vulnerable to a sell off.”

Comments by BoE Chief economist Spencer Dale also weighed on the pound after he noted that "buying gilts from foreign investors can have beneficial impact through weaker FX rate.” UK policy makers are clearly becoming concerned that cable may have gotten ahead of itself in its recent rally and that its strength could sabotage the nascent economic recovery.  The news on the economic front however was more positive for pound bulls as BBA mortgage applications jumped to 31K from 29K projected beating estimates for the first time in three months and helping GBP/USD to recapture the 1.6250 level.

The news form the EZ on the other hand was rather mixed with GFK consumer confidence survey printing better than expected but service PMI readings declining for the first time in five months. Consumer confidence improved to 2.9 form 2.5 eyed and as we noted, “suggests that consumers may be willing to begin spending again, albeit at conservative levels. Consumption has been the weakest link in the EZ recovery story and today’s report should be welcome news to euro bulls.”

On the other hand, the service PMI reading declined to 44.5 from 45.8 the month prior indicating that the EZ recovery story may be starting to run out of steam. Services constitute the vast majority of EZ economic activity, with tourism a vital sector of that component. With EUR/USD rates near yearly highs and recessionary pressures in US dampening travel, tourism revenue is likely to contract sharply during the key summer season and could put further pressure on the gauges in months to come.

The EUR/USD however, shrugged off the eco results and climbed to the 1.3900 level in morning European trade. The pair appears to be well supported at the 1.3800 level with reported Central Bank bids clustered around the figure to defend option expiry barriers.  On the other hand 1.4000 remains a significant level of resistance for the time being and the pair may simply range trade this zone for the rest of the week. We however, continue to believe that the bias remains to the downside and that pair could   be vulnerable to further sell offs as the week progresses.   

FX Upcoming

The information, including Commentary and Trade Ideas, provided on FX360.com should not be relied upon as a substitute for extensive independent research which should be performed before making your investment decisions. Global Forex Trading and FX360 .com is merely providing this information for your general information. The information and opinions presented do not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision and should tailor the trade size and leverage of their trading to their personal risk appetite. Any projections or views of the market provided by FX360.com may not prove to be accurate.

The views of the authors and analysts are not necessarily those of Global Forex Trading, its owners, officers, agents or other employees. FX360.com and the currency research team will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained on FX360.com. Global Forex Trading and the currency research team do not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.

• Share this:

Comments (10)

St_Fx

June 23, 2009 at 05:11 PM ET

Hi Boris,
In first phara of above article, "figure sparked a short covering rally". euro clear the 1.4000 psycho level , is that hold and more weakness in dollar or its the short covering rally.

bschlossberg

June 23, 2009 at 05:28 PM ET

I am still dubious about the euro rally but you have to respect the price action. For now 1.4000 is support and the short term bias is up, but I just can bring myself to chase this move just yet.

St_Fx

June 23, 2009 at 05:15 PM ET

Equity market not cover its yesterday losses as fx market do, specially in US trading session.

bschlossberg

June 23, 2009 at 05:29 PM ET

Yes Kathy makes a note of the divergence today

Les

June 23, 2009 at 06:40 PM ET

Greatly appreciated commentary, Boris. by way of clarification: when you refer to overnight Eco, do you mean P.M., USA, June 23, 2009 into next day?

Thanks
Les

bschlossberg

June 24, 2009 at 03:56 AM ET

My report comes out 5 AM US time so when I refer to overnight I am talking about overnight for US which is Asia and European open

Nicholas Huang

June 24, 2009 at 01:08 AM ET

Hi Boris,

Can you briefly explain why an increase in US T-bills prices cause USD to depreciate? I thought an increase in US T-bills shows that the demand for US T-bills is still there and people aren't afraid to own it. Shouldn't it cause USD to hike not depreciate instead? Thanks!

Best Regards,
Nicholas

bschlossberg

June 24, 2009 at 03:58 AM ET

Absolutely, but it looks like he market is more concerned with FOMC and any additional QE moves. Also we had surprsinglyl impressive IFO PMI and Consumer confidence data out of Europe and that has turned sentiment towards euro.

Nicholas Huang

June 24, 2009 at 09:49 AM ET

Thanks boris. GBP/USD is having some interesting patterns right now on the 60min. chart....

it can be quite confusing sometimes,

i think some people are eager about a quick recovery which brings on dollar weakness, and some people are topping those high coz its still too early, so its up and down and up..omg

bschlossberg

June 24, 2009 at 11:05 AM ET

Roller coaster is the operative word here, but I think that we'll have hard time breaking 1.6666 unless equities stage another rally.

Add Your Comment

Please login to post a comment or sign up for an FX360® account.

Loading...