Daily FX Summary: November 9
EUR fell against the USD on Tuesday amid ongoing concerns over the unsustainable debt levels in Ireland and Portugal, which are both due to tap the primary markets on Wednesday. The move lower saw the pair breach the key 76.4% Fibonacci retracement level and also consolidate below 1.3900. The next major support is seen at 1.3700 and a convincing break below will indicate that a downtrend has began. As mentioned earlier, the attention is now firmly on the Portuguese Oct-16 issue on Wednesday, which will either help the pair move back above 1.4000 or instead confirm the fact that PIIGS (Portugal, Ireland, Italy, Greece, Spain) nations are indeed in dire need of EU/IMF bailout money. In terms of other major technical levels, 1.3835/10 support levels should contain any near-term selling.
Position squaring ahead of the upcoming Quarterly Inflation Report by the BoE on Wednesday, as well as vague market chatter that the central bank may increase its mandated inflation target which currently stands at 2% meant that the pair finished lower on Tuesday. Also, weak RICS housing data, which fell to an 18-month low underpinned the view that the housing market in the UK may suffer a double-dip as a result of austerity measures that the coalition government has introduced. Still, GBP will be highly reactive to the Wednesday release of the Quarterly Inflation report and may enter into a bullish trade pattern if the BoE suggests that the UK’s economic outlook isn’t as dire as previously thought. In terms of key technical levels, the nearest support level is seen at the 10DMA at 1.6055, followed by 1.6000. Further below is the 21DMA at 1.5935 which will provide further support.
The pair finished the session higher on Tuesday amid renewed strength in the USD as investors continued to fret over the implication the latest widening of the peripheral spreads will have on the PIIGS states ability to raise money in the primary markets. The price action will likely continue to depend on USD related flows and given the current uncertainty over the EU, the greenback may enter a period of consolidation and strengthen on the back of a safe-haven appeal. In terms of key technical levels, 80.60 is seen as key support, which once breached opens the door towards a test on the 80.00 handle.