Daily FX Summary: October 26
Courtesy of Talking Forex
EUR posted broad based losses on Tuesday amid a stronger USD and following news that Citigroup has advised its clients to take profits on long EUR/USD positions. As a result, the pair fell below the 10DMA (1.3935), the 21DMA (1.3862) and looks set to make a test on 1.3800 in the coming days. The anti-EUR sentiment was also in part blamed on reports by Greek newspaper Kathimerini which noted that delays in the collection of taxes in Greece may cause a EUR 900mln shortfall, while the infamous El-Erian of Pimco said that he sees the country defaulting within three years. In turn, yield spreads between the Greek 10y govt bond vs. German bunds widened and sparked fresh fears about the debt issues by other peripheral states. Note that Wednesday sees Portugal attempt to sell Oct-14 and Jun-18 bonds and should the demand disappoint, further EUR weakness should not come as a surprise. In terms of technical levels, to the downside the pair is faced with a major support at the 50.0% Fibonacci retracement level at 1.3511. But before that, 1.3840/00 and 1.3750 levels are expected to slow the descent.
Despite a stronger USD, the pair rallied and posted gains of over 100pips on Tuesday after the UK's Q3 advanced GDP data beat expectations by a impressive margin and S&P revised the UK's sovereign rating outlook to stable from negative, affirming the country's 'AAA' rating, having been satisfied with the coalition governments performance and budget plans outlined thus far. As a result, the pair staged a convincing rally and broke above 1.5800, the 10DMA (1.5828), the 21DMA (1.5836) and given the underlying strength in the data, the pair may make another attempt on surpassing 1.6000 in the coming days. Tuesday's first reading of UK GDP data has prompted the trading community to speculate whether the BoE will be forced to delay the resumption to its Asset Purchase Facility (AFP) in November. So much so that JP Morgan suggested that the BoE may remain on the sidelines and only announce another round of asset purchases in February. However there are plenty of reasons to call Tuesday's rally a so called "dead-cat bounce". That is partly because the majority of the forward looking indicators are pointing to a slowdown and there is a clear lack of credit growth, which is particularly worrying for the BoE. Nevertheless, renewed Eurozone sovereign related concerns may benefit GBP in the near-term, largely due to the fact that the currency tends to be traded as a EUR-hedge. In terms of technical levels, to the upside, 1.5900 and 1.5950 are seen as near-side resistance levels. While to the downside, 1.5800 and then 1.5750 and among key support levels.
The pair rose towards the mid-81.00 levels on Tuesday amid a stronger greenback, which gained following renewed concerns over the Eurozone and on the back of much better than expected UK GDP data which lifted GBP across the board. Despite the recent upside price action, risks are still tilted to the downside and looking forward should the USD weaken in the near-future, which is almost certain if the Fed introduces another round of asset purchases, then another attempt to test the all-time low at 79.75 cannot be ruled out. As such, the probability of official intervention remains elevated, which was reinforced by the Japanese finance minister Noda who said that the BoJ/MoF will take bold action if necessary to stem the JPY's appreciation.