The EUR/USD is heading south along with the GBP/USD and gold while the USD/JPY pops following a much better than expected wave of economic data from the U.S. Strength in the Dollar off of positive U.S. econ data is the opposite reaction of what we'd normally expect. Therefore, we are witnessing an interesting alteration in sentiment as investors favor the Dollar due to comparative strength of the U.S. economy. We will monitor the correlation between the Dollar and the S&P closely over the next 24 hours to see if this reversal follows through. Meanwhile, The Euro is exhibiting relative strength against the Pound after BoE Governor King announced the central bank is leaning towards decreasing the deposit rate it pays banks on reserves, thereby increasing liquidity in the financial system. King's continual dovish attitude counters that of the ECB's Trichet, who has incessantly fought off the doves and maintained a relatively hawkish stance during the economic downturn. The ECB's steadfast behavior is paying dividends for the Euro as we witness a huge breakout in the EUR/GBP. In fact, this appears to be a new leg up in the EUR/GBP, indicating further strength in the EU vs. Britain over the near-term.
The Euro is managing to exercise relative strength despite the fact that Germany's ZEW Economic Confidence number came in shy of analyst expectations today. However, even though Germany's number missed, the overall EU ZEW Economic Confidence data eclipsed expectations. Regardless of the mixed results, the ZEW Economic Confidence readings have recovered considerably and are nearing 2006 highs. Today's data helps confirm that the economic recovery continues to take root in the EU region. The Euro is benefitting from the mixed/positive data in conjunction with the ECB's minimum bid rate holding steady at 1%. The EU will release CPI data tomorrow and we will watch closely to see whether the rapid decline in consumer prices can finally reach some form of stabilization. Positive CPI data would only help buoy the Euro more since this would allow the ECB to feel comfortable keeping their present liquidity measures in place instead of being pressured to fight off deflation. Meanwhile, it seems like the divergence in attitudes regarding monetary policy at central banks is resulting in more independent performance among the major currency pairs. We believe the divergence in correlations could persist over time since the central banks may take different approaches in regards to the process of unwinding their respective liquidity packages. Hence, investors shouldn't overreact to the collapse in the GBP/USD today since Trichet and King obviously have their differences.
Technically speaking, the EUR/USD is still riding high off of last Tuesday's breakout to the topside. The currency pair continues to set higher lows while trading above the psychological 1.45 level. We still place significance on Tuesday's movement since the EUR/USD leapt to new 2009 highs. There aren't any concrete, historical downtrend lines we can cross through present ranges. Hence, the medium-term uptrend is clearly intact. However, the 1.45-1.50 should continue to be a sticky range since there is quite of bit of historical trading in this range in late 2008. As a result, the EUR/USD will likely need another jolt to break free of its topside obstacles. The next technical barriers are December 2008 highs along with the highly psychological 1.50 level. As for the downside, the EUR/USD has Monday's lows along with the psychological 1.45 level.
Present Price: 1.4590
Resistances: 1.4591, 1.4607, 1.4639, 1.4672, 1.4710
Supports: 1.4669, 1.4550, 1.4534, 1.4518, 1.4506