Euro extends current decline as Moody's put Portugal's Aa2 debt rating on watch for a possible downgrade. The company's statement said that the rating action reflects the recent deterioration of Portugal's public finances as well as the economy's long-term growth challenges. Also, increased risk discrimination in the financial markets may raise Portugal's financing costs for some time to come. EUR/USD drops through 1.29 level while risk averse sentiments also send the greenback higher against other major currencies.
ECB council member Weber said that there is threat of grave contagion effects for other member stats in EU and increasing negative feedback loop effects on capital markets. German bund yields dropped to 15 month low on concern that the EUR 110b bailout for Greece would fail to stop spread over to other countries. Yield on 10 year Greek bonds rose further above 10% and spread with German bund yields is closing 700bps again. Yield on 10 years Portuguese bonds jumped above 5.8% while that on Spanish bond also stay firm above 4%. CDS on Greece, Spain and Portugal also rise further today.
Sterling strengthens against Euro as polls showed Conservative Party may come closest to winning tomorrow's general election in UK. Also, there are speculations that Conservative Party may be able to form an alliance with Democrative Unionist Party. In any case, traders are betting that whoever win the election will deliver a plan to reduce the record budget deficit. However, we suspect that selling pressure on sterling will restart after the election even risk is cleared.
Dollar is firm across the board after positive job data. ADP report showed 32k expansion in the private job market in April, basically inline with expectation. Challenger report shows planned layoffs in US fell more than 40% in April to the lowest level in nearly 4 years. Dollar index breaches our target of 61.8% retracement of 89.62 to 74.19 at 83.72 and is set to upper channel resistance at around 84.10. Intraday bias in the index remains on the upside for the moment and sustained trading above there will set the stage for further acceleration towards 86.87/89.62 resistance zone. Below 83.37 will turn intraday bias neutral first.
EUR/USD Mid-Day Outlook
Daily Pivots: (S1) 1.2908; (P) 1.3061 (R1) 1.3140; More.
EUR/USD's fall is still in progress and reaches as low as 1.2882 so far. Intraday bias remains on the downside and further decline should be seen to next target of 100% projection of 1.4578 to 1.3443 from 1.3817 at 1.2682. Break there will target a retest on key support zone of 1.2329/2456. On the upside, above 1.2997 minor resistance will indicate that a temporary low is formed and bring recovery. But upside should be limited by 1.3114/3341 resistance zone and bring fall resumption.
In the bigger picture, the three wave consolidation from 2008 low of 1.2329 has completed at 1.5143 already and fall from there is resuming whole down trend from 2008 high of 1.6039. We'd expect fall from 1.5143 to break through 1.2329 low eventually. On the upside, break of 1.3691 resistance is needed to be the first signal of bottoming. Otherwise, outlook will remain bearish.
Economic Indicators Update
GMT Ccy Events Actual Consensus Previous Revised
BRC Shop Price Index Apr
Building Approvals M/M Mar
German PMI Services Apr F
Eurozone PMI Services Apr F
PMI Construction Apr
Eurozone Retail Sales M/M Mar
Eurozone Retail Sales Y/Y Mar
Challenger Job Cuts Y/Y Apr
ADP Employment Change Apr
ISM Non-Manufacturing Composite Apr
Crude Oil Inventories