Daily FX Summary: November 16
EUR came under renewed selling pressure on Tuesday in spite of the fact the Irish government continued to argue that it does not need to tap the primary markets until next June. Still, given that the Irish banks are plagued with soar loans, which as a result is expected to lead to another liquidity injection suggests that the country may be forced to tap the stability fund just to save its beleaguered banks. It wasn’t just the Eurozone related problems that led to a sell off and a stronger USD, which rose not only due to ongoing safe haven appeal but also following speculation that the PBOC will introduce monetary policy tightening measures (Shanghai Composite closed down 4% on Tuesday). In terms of technical levels, to the downside supports are seen at 1.3400, which once breached opens the door towards the psychologically important 1.3000 level.
GBP posted heavy losses against the USD on Tuesday which rose sharply amid renewed uncertainty over the Eurozone and further tightening moves in Asia. Tuesday’s CPI data remained above the BoE’s mandated level, however the central bank continued to argue that given the high level of economic slack, price pressures are expected to subside. So much so that governor King said that the Quantitative Easing (QE) program may be resumed in the future to stimulate growth and counteract austerity measures. In terms of technical levels, to the downside supports are seen at 1.5800 and then at 1.5780. While to the upside, resistance is seen at 1.5900 and at 1.5930. Much of the attention on Wednesday will be on the release of the minutes from the latest rate setting meeting, to which GBP is expected to be highly reactive to.
The pair continued to edge higher and moved to mid-83.00 levels and toughed on highest levels since October the 5th amid a stronger USD which rose following ongoing uncertainty over the Eurozone, as well as potential monetary policy tightening moves by the PBOC. Still, the price action going forward will continue to depend on the USD and should the EU policy makers come up with a resolution to the EU crisis, the USD may loose its safe-haven appeal which in turn will put renewed pressure on JPY.