EUR/USD: The euro continued to tumble away from its mid-September highs as on-going uncertainty over Spain’s aid timetable and fresh concerns over Greece left investors cautious.
After jumping to US$1.2973 on the European open, which proved to be the intra-week high, the pair sank to US$1.2896 as a dismal IFO print of 101.4 triggered a risk-off environment. The figure acted to reinforce concerns that Europe’s recovery was stalling. An easing in Spanish and Italian bond yields late in the day dragged the euro back higher.
Choppy consolidation was the theme early on as a wave of news drove moves. The lack of a positive catalyst proved key as escalating protests in Spain and QE3 criticism by the Fed’s Plosser provided ample excuses for markets to sell.
In light of the growing EZ anxiety, there was an air of calm in the sell-off which eventually left the pair languishing a touch above its 200 DMA at US$1.2835. On Thursday attention turned to the unveiling of the 2013 budget by Spain. Initially the pair dipped lower, before bouncing perfectly off the 200 DMA of US$1.2828. The budget greeted anxious markets with a reassuring boost, shunting the euro to US$1.2928, although past the façade it remained likely the country would require a bailout at some stage.
As we approached the month-end, prices adopted their typical random walk. Rebalancing coupled with continued downside bias as a result of worries regarding Spain saw the euro end September close to its weekly lows at US$1.2852.
It is likely the euro will weaken against the dollar in the medium term as the QE3 premium fades, however with the Fed’s labour-centric focus, all eyes will be on the NFP next week for the next big move.
A rocky performance by Cable ultimately left the pair lower as a complete turnaround on Friday deprived it of its hard fought gains. For the most part, Cable was confined to the sidelines as the EZ debt crisis formed the bigger picture.
A difficult start to proceedings was earmarked by poor IFO data, although sentiment remained heavily burdened by the negative Spanish undertone. The pair slumped to US$1.6181 following word of tiff between Hollande and Merkel over the use of a single banking regulator. Cable sank to a near two-week low of US$1.6137 midweek after tracking the euro lower.
There was some good news during the week as the UKs 2Q GDP figure was revised slightly higher to leave a finalised figure of -0.4%. Whilst this still leaves the country technically in a recession, it was enough to give the pair a little boost in a rally that led it to US$1.6243. On Friday the pair moved its entire weekly range with Spanish downgrade fears prompting investors to flee perceived riskier currencies. Having earlier climbed to a US$1.6272 high, it crumbled to end the week near US$1.6140.
It is likely sterling will weaken against the dollar as it continues to be overshadowed by the single currency as the EZs periphery remains the focus.
While the yen ended the week within a few pips of its starting price, suggesting another prosaic performance by the pair, price action was decidedly interesting. Failing to quite reach the vociferous moves seen the previous week, the pair staged a prolonged slide lower spanning several sessions. Falling U.S. Treasury yields, fiscal mid-year flows and EZ caution conspired to send the yen to an intra-week ¥77.44 high.
Midweek, having dropped as low as ¥77.59 at one stage, the BoJ jumped on the wires to warn that it wouldn’t hesitate to initiate further easing if ‘risk heightened substantially’. This left intervention alarm bells ringing and the pair spiked to ¥77.91 before markets calmed and it continued on its journey lower.
Similar to Cable, Friday proved to be the crucial day as a mix of mid-year fiscal flows and dollar strength saw the yen broadly weaker as it snapped a seven-session losing streak to hit a ¥78.10 high.
It is likely the yen will strengthen against the dollar as investors continue to move to perceived safer currencies, however risk of intervention will continue to protect the downside.
The precious metal had a mixed week as it ended a strong month which saw it gain almost 5%. Consolidation played a crucial part early in the week as wavering oil prices and profit-taking kept the metal pinned well below previous week’s $1,787 high. The expiry of a call strike at $1,800 in the gold options market also initiated some selling from disappointed investors.
The sell-off continued in a more pronounced fashion midweek as crude oil continued to come under pressure. Some housing data in the U.S. gave support to the dollar which only exacerbated proceedings. Having plumbed a $1,736 low for the week, the tide turned as speculation over additional stimulus in China and renewed Spanish debt concerns reinvigorated gold. It stormed higher to cap a $1,783 high before spending Friday easing back to leave it near $1,770.
It is likely gold prices will continue to rise as the Fed continues its rolling purchasing programme and finds safe-haven demand in the face of worsening conditions in the EZ. However, it may see strong resistance just below $1,800 an ounce which sees the 2012 high set in February.
Previous articles on Forex >>>
Other articles by Andrew Speakman >>>
Warning: Remember, particularly if you are new to trading in the stock market and in forex, that the prices of shares and other investments can fall fast and you may not get back the money you originally invested. The material here is for general information only and is not intended to be relied upon for individual investment decisions. Take independent advice before making such decisions. Also, the BullBearings free stock exchange simulation portfolios are a good way to practice trading techniques.
Thu, 1st Jan - * Well-received results from a number of FTSE 100 heavyweights and a sharp drop in consumer-price inflation in the UK lifted London's benchmark index to fresh multiyear highs on Tuesday.