By Fast Brokers – The EUR/USD cut its losses yesterday above June 22nd highs, and is presently retesting June 24th highs along with our previous top-end 1.4097 resistance. However, we take note the EUR/USD’s current movement upward is occurring on declining volume, making a technical breakout to the upside today unlikely. On the other hand, if the EUR/USD can climb above June 24th highs we could see a near-term pop to our 3rd tier downtrend line. We notice a similar space for near-term upward mobility in gold, which is positively correlated with the EUR/USD. However, we don’t anticipate any immediate term movement above the EUR/USD’s 3rd tier downtrend line since there isn’t much economic data on the table today.
The EUR/USD is participating in another broad-based route of the greenback resulting from China reiterating its desire for a new currency standard. A global monetary detachment from the Dollar would be negative for America’s economy since it would mean replacing the greenback as the standard for global transactions and pricing of commodities. The monetary tug of war is having a negative psychological impact on the Dollar, sending the EUR/USD higher despite recent disconcerting economic data from the EU region. While the EUR/USD has experienced some encouraging defense to the downside lately, we must remember that the larger volume has been on the sell side.
The EUR/USD experienced heightened volume to the downside on the 24th as a result of the ECB discretely injecting roughly $615 Billion into its banking system. The ECB is allowing banks to take one-year loans from this massive pool of liquidity at a fixed 1% rate. While the ECB isn’t labeling the liquidity package as a bailout, the apparent terms of the loans are close enough to a rescue. Apparently, German exporters and manufacturers are facing difficulty attaining credit/capital, indicating credit markets are still tight. The ECB is hoping the new injection of liquidity into the banking system will encourage higher loan rates to keep the recovery humming. As a result of the EU’s use of one-year funds, the EU, Britain, Japan, and U.S. are a little more even now in regards to their monetary exposure to the economic crisis. Although, the ECB still has a benchmark rate of 1% as compared to the U.S. and Japan’s sub 1% rates.
Regardless of the psychological comments made by China, there remains a cap on the EUR/USD’s gains. The mixed economic data and new liquidity measures add to the concern that we may experience a second wave of the economic crisis. The BOE and Fed have also spoken cautiously about the health of the global economy and financial system. Investors should keep in mind that the EUR/USD still exhibits an ultimate positive correlation with U.S. equities. Therefore, the EUR/USD’s uptrend may be compromised if the global economic recovery were to hit a stumbling block and U.S. equities head south in reaction.
We believe the tug of war could continue between the bulls and the bears for the short-term. Investors seem indecisive in regards to which direction to commit, and we will wait for a technically significant statement before passing judgment. Most important will be the future interaction between the EUR/USD and our 3rd tier uptrend and downtrend lines.
Present Price: 1.4084
Resistances: 1.4097, 1.4141, 1.4167, 1.4191, 1.4229
Supports: 1.4061, 1.4024, 1.3978, 1.3928, 1.3894
Psychological: 1.45, 1.40, 1.35
Market Commentary provided by Fast Brokers.
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