Wednesday, January 19, 2011

Euro Critical Juncture | 19 January 2011

Euro Critical Juncture | 19 January 2011

The EUR/USD pair has finally managed to cross one of the key barriers at 1.3500 on Wednesday and it will now be interesting to see how the EUR/USD reacts into the New York close.
A close back above 1.3500 will be viewed as a bullish development. This could open the door for additional bullishness over the coming days and maybe rising even closer towards the 1.3800-1.4000 area.

However, inability to close above 1.3500 will keep the existing model intact and suggest that the currency pair is adhering to a well defined consolidation trend. Following that line of reasoning could result in yet another topside failure causing a bearish resumption back below 1.3000 over the next trading sessions.

The primary drivers behind the latest surge in the EURO, and other currencies, in general have been commitments from Russia, China, India and Japan to buy EFSF debt to support the EURO.

We also see an ongoing sense of urgency from the US Federal Reserve to look to begin to tighten monetary policy despite rising inflationary pressures in the US.

On the policy front, Wednesday’s session has been all about the United Kingdom. With of employment data coming in better than expected to keep the Pound well supported. However, the Sterling has failed to extend gains on Wednesday. Even with the stronger data, and solid offers having emerged into strength ahead of 1.6100.

Looking ahead, investors will be sure to focus on US Q4 earning results, with very important earnings coming out of the financial and banking sectors. These results, one way or the other, will influence a broader global price action.

Meanwhile, on the economic data front, Canada manufacturing shipments, 0.5% expected, are due at 13:30GMT along with US housing starts, we expect550k.

US equity futures are slightly offered while commodities are mildly bid. Please note that a recent surge in equities has now resulted in overbought daily technical studies. This is a potential warning indicating potential weakness in stocks over the coming trading sessions.

January 19, 2010 - by David Frank, Financial Analyst, Ava Fx