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2 May 2013
Forex: EUR/USD closes its fourth day of gains but remains below 1.3200
FXstreet.com (San Francisco) - After testing the highest level since February 25 at 1.3241 in the early American session, the EUR/USD traded lower on the rest of the session with the pair pricing back below the 1.3200 area at 1.3180. Wednesday was the fourth positive day in row but as FXstreet.com's analyst Valeria Bednarik commented in a recent report, "despite the strong upward momentum seen in European currencies this Wednesday, the upward continuation is not a done deal."
The EUR/USD is currently trading 0.13% above Wednesday opening price at 1.3185, but it’s moving slightly bearish according to the FXstreet.com trend index in the 1-hour chart. Indicators such as CCI and the Momentum are pointing to the south while the MACD and the Stochastic are neutral.
"With the EUR/USD having been as high as 1.3241, a few pips above 1.3225, 50% retracement of its latest daily fall," points Bednarik. "The pair however, was unable to sustain gains beyond the level, or even open an hourly candle above it." As for the short term, next resistances are at 1.3200, and at the mentioned 1.3225, head of the 1.3320 (high Feb.25). On the downside, support levels align at 1.3162 (hourly low May 1) followed by 1.3120 (hourly high Apr.30) and finally 1.3052 (MA21d).
Beside the non-event FOMC meeting, where the Central Bank did not offered any review to the economic outlook, but said they are ready to increase or reduce the level of the QE purchases, the real investors' concern are on the economic data field. In addition to the recent weaker than expected Chicago PMI and US Q1 GDP, on Wednesday a new bath of bad data including the ISM Manufacturing PMI, the construction index and the, more important, ADP employment report undermined the recovery confidence.
Market is now thinking how much they have overestimated the economic data in the first three months of 2013. Are the European Union and the United States economic situation too different? As the second half of the week starts, investors will pay attention to the ECB rate decision on Thursday and the employment report in the US on Friday.
The Bank's day: ECB chapter
Overall, the EUR/USD "is expected to consolidate in between 1.3150, 100 DMA and 1.3225 Fibonacci level, until Thursday ECB policy meeting," Valeria Bednarik states. But BK Asset Management's analyst kathy Lien asks: "Will ECB Kill the EUR Rally?"
Since the 1.2953 April 24th's bottom, the EUR/USD has been trading higher on the back of speculations on a possible rate cut by the ECB. On Wednesday, the EUR/USD touched levels above the 1.3200 level for first time since February but as mentioned above, the pair was unable to trade above the 1.3225 fibo level.
"Traditionally," points Lien, "expectations for easier monetary policy are negative for a currency but in the case of the euro, since the central bank started dropping hints about the potential for lower rates and economic data confirmed the need for more stimulus, the euro appreciated in value, rising to its highest level against the U.S. dollar in 2 months today."
Answers to her question, lien states that "a simple rate cut by the ECB may not be enough to kill the euro rally." However, "the key is what else the central bank says they will do." If the Bank hints that the cut is the only movement, so euro could rally as impact with be minimal on yields, but "if the ECB suggests that they are willing to do more like accept a negative deposit rate, ease collateral rules on loans or Quantitative Easing, the EUR/USD could fall quickly but we think this scenario is unlikely," continues Lien.
The Rabobank's analyst team forecasts a 25bp ECB rate cut in the Thursday meeting as the bank expects "that continued recession and benign inflation in the Eurozone could provide sufficient ammunition for the ECB to cut interest rates in May."
According to Rabobank, the rate cut is a negative factor for the EUR and they "see EUR/USD as potentially revisiting the EUR/USD1.28 area on a 3 mth view, it is likely that the prevalence of long USD positions built up earlier in the year is providing EUR/USD with decent support. As a consequence we continue to expect further range trading near-term."
The EUR/USD is currently trading 0.13% above Wednesday opening price at 1.3185, but it’s moving slightly bearish according to the FXstreet.com trend index in the 1-hour chart. Indicators such as CCI and the Momentum are pointing to the south while the MACD and the Stochastic are neutral.
"With the EUR/USD having been as high as 1.3241, a few pips above 1.3225, 50% retracement of its latest daily fall," points Bednarik. "The pair however, was unable to sustain gains beyond the level, or even open an hourly candle above it." As for the short term, next resistances are at 1.3200, and at the mentioned 1.3225, head of the 1.3320 (high Feb.25). On the downside, support levels align at 1.3162 (hourly low May 1) followed by 1.3120 (hourly high Apr.30) and finally 1.3052 (MA21d).
Beside the non-event FOMC meeting, where the Central Bank did not offered any review to the economic outlook, but said they are ready to increase or reduce the level of the QE purchases, the real investors' concern are on the economic data field. In addition to the recent weaker than expected Chicago PMI and US Q1 GDP, on Wednesday a new bath of bad data including the ISM Manufacturing PMI, the construction index and the, more important, ADP employment report undermined the recovery confidence.
Market is now thinking how much they have overestimated the economic data in the first three months of 2013. Are the European Union and the United States economic situation too different? As the second half of the week starts, investors will pay attention to the ECB rate decision on Thursday and the employment report in the US on Friday.
The Bank's day: ECB chapter
Overall, the EUR/USD "is expected to consolidate in between 1.3150, 100 DMA and 1.3225 Fibonacci level, until Thursday ECB policy meeting," Valeria Bednarik states. But BK Asset Management's analyst kathy Lien asks: "Will ECB Kill the EUR Rally?"
Since the 1.2953 April 24th's bottom, the EUR/USD has been trading higher on the back of speculations on a possible rate cut by the ECB. On Wednesday, the EUR/USD touched levels above the 1.3200 level for first time since February but as mentioned above, the pair was unable to trade above the 1.3225 fibo level.
"Traditionally," points Lien, "expectations for easier monetary policy are negative for a currency but in the case of the euro, since the central bank started dropping hints about the potential for lower rates and economic data confirmed the need for more stimulus, the euro appreciated in value, rising to its highest level against the U.S. dollar in 2 months today."
Answers to her question, lien states that "a simple rate cut by the ECB may not be enough to kill the euro rally." However, "the key is what else the central bank says they will do." If the Bank hints that the cut is the only movement, so euro could rally as impact with be minimal on yields, but "if the ECB suggests that they are willing to do more like accept a negative deposit rate, ease collateral rules on loans or Quantitative Easing, the EUR/USD could fall quickly but we think this scenario is unlikely," continues Lien.
The Rabobank's analyst team forecasts a 25bp ECB rate cut in the Thursday meeting as the bank expects "that continued recession and benign inflation in the Eurozone could provide sufficient ammunition for the ECB to cut interest rates in May."
According to Rabobank, the rate cut is a negative factor for the EUR and they "see EUR/USD as potentially revisiting the EUR/USD1.28 area on a 3 mth view, it is likely that the prevalence of long USD positions built up earlier in the year is providing EUR/USD with decent support. As a consequence we continue to expect further range trading near-term."