Daily strategy 16-04-10 - Gap fears to protect Euro

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It will still be very difficult to secure a sustained improvement in sentiment surrounding Greece, the Euro-zone and Euro. In this environment, Euro rallies will quickly attract fresh selling pressure given the serious underlying stresses, especially if there are further German protests against aid. There will be caution over selling the Euro aggressively, especially as there was a sharp spike higher after last weekend, and traders will not want to get caught out again. On Friday, it looks too dangerous to sell EUR/USD below 1.3520 with small long positions worth a look even with potential renewed selling pressure next week.

The pattern of fluctuating sentiment towards the Euro persisted on Thursday with markets less confident again. There was a fresh widening of yield spreads with Greek bonds moving back to yield more than 400 basis points over German bunds.

There was renewed speculation that the support package would not be able to mask the underlying stresses with the weaker member countries trapped in an environment of weak growth. The Euro dipped sharply to lows near 1.3520 with some reports of central bank selling of the currency as Greece asked for formal talks to discuss multilateral support.

The US economic data was mixed during day with a slightly firmer bias. The business survey evidence was robust with the New York manufacturing index rising to 31.9 for April from 22.9 while the Philadelphia Fed index also strengthened to 20.2 from 18.9 which was the highest level since December 2009 which will maintain optimism towards the manufacturing sector.

In contrast, the jobless claims data was weaker than expected with a further increase in initial claims to 484,000 from 460,000 the previous week. Seasonal factors may again have played a part, but the second successive week of higher claims could raise some fresh doubts over employment trends which would also reinforce doubts over the prospect of 2010 Fed tightening.

The dollar struggled to extend the advantage and the Euro recovered back to around 1.3570 later in the US session. The Euro drifted lower again on Friday with a lack of buying support as fears surrounding the Greek situation persisted.

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