Fundamental Overview for the Majors
Euro Improves on Portuguese Bond Auction:
The daily forex news was dominated by the favorable outcome in the Portuguese bond sale held earlier today where Portugal auctioned off €1.25B of four and ten year bonds. The ten year yield was at 6.71% and came in below the potentially problematic 7% level.
Furthermore, the better than expected demand seen for Portuguese debt helped reduce investor fears that Portugal would soon follow Ireland in asking for an ECB/IMF bailout. Nevertheless, the ECB is still reportedly considering a €60B financial aid package for the country, although the Portuguese government seems reluctant to accept it.
Also assisting the Euro today was talk that Eurozone finance ministers are considering increasing the financial aid fund to help ease Euro debt market concerns. In particular, the EU’s European Commission said it wanted to reinforce and expand the application of its existing €440 billion European Financial Stability Facility.
In terms of economic data out today in the Eurozone, the market was pleasantly surprised by an unexpected favorable rise in EZ Industrial Production last month of +1.2% compared with the consensus of only +0.5% and the previous month’s +0.7% result.
Currency traders are now looking ahead to tomorrow’s Spanish auction of €3B and Italian auction of €6B in bonds for further directional guidance for the Euro in the near term. In addition, the ECB’s latest Press Conference to announce its latest Rate Decision is expected to leave the central bank’s benchmark Minimum Bid Rate steady at 1.0% tomorrow.
Sterling Also Gains Despite Record Trade Deficit:
Like the Euro, the Pound Sterling rose notably today on the back of relief over the relatively successful Portuguese bond auction. GBP/USD rose to a high of 1.5776 after dipping only slightly to a daily low of 1.5582.
The initial drop in Cable came in the wake of the U.K. releasing a historically wide deficit in its Trade Balance for December. The U.K. National Statistics office reported a trade deficit of -8.7B that was a disappointment compared with the -8.2B expected and the previous result of -8.6B.
Coming up tomorrow, Britain will release important Manufacturing and Industrial Production data, as well as the BOE’s Official Bank Rate and Asset Purchase Facility Decision and its associated MPC Statement.
Australian Dollar Higher With Gold Despite Mixed Employment Report:
The Australian Dollar reversed some of its recent losses to end the day up against the Greenback ahead of important medium term trend line support and in sympathy with a higher gold price that rose from 1381.23 at the open to end the day at 1387.65.
With that noted, recent flooding in Queensland continued to weigh on AUD/USD sentiment somewhat. Furthermore, AUD/USD fell sharply to 0.9916 later in the day on the release of a worse than expected Australian Employment Report. In it, the Australian Employment Change showed only a modest rise of +2.3K versus the higher +25.2K rise expected and the previous month’s +54.6K gain.
On the brighter side, the Australian Unemployment Rate fell to 5.0% from 5.2% that was better than the 5.1% number the market was anticipating. As a result, the AUD/USD rate subsequently gained back much of its initial losses.
Japanese Yen Treads Water but Dips on Fed Beige Book Release:
USD/JPY stayed largely range bound during today’s fx trading news session, with the rate closing down overall on the day after having reached an intraday peak of 83.45 followed by a low of 82.80.
The daily low in USD/JPY came soon after the release of the Federal Reserve’s Beige Book that provides anecdotal evidence as to the current economic situation based on interviews with business contacts and economists from the twelve Federal Reserve Districts.
The closely watched report indicated that while U.S. economic activity seemed to have generally improved over the last month and a half, the manufacturing sector indicated concerns in some districts over rising production input and commodity prices.
Furthermore, housing, credit and job sector conditions are still lagging in the United States and so continue to present a drag on overall economic growth.
Technical Overview of EUR/USD
From a technical perspective, a big mover during today’s currency market trading session was EUR/USD that improved almost two big figures from a daily low of 1.2964 to a high of 1.3143.
An intraday EURUSD analysis shows that the Euro’s sharp rally versus the Greenback has now reversed its downward trend from the 1.3433 high of January 4th that seems to have bottomed out on the 10th at 1.2873.
The rate has already breached the 23.6% and the 38.2% Fibonacci Retracement levels at 1.3005 and 1.3087 respectively. Furthermore, EUR/USD is currently bumping up against the 50% level at 1.3153 with a break there targeting the key 61.8% level at 1.3219.
Looking forward, if the 61.8% level for EUR/USD is then exceeded, that would suggest a 100% retracement to the important 1.3433 resistance level is likely.
Chart 1: Side by side Hourly (left) and Four Hourly (right) candlestick charts of EUR/USD showing Bollinger Bands in pale green, its 200-period MA in red, trend lines in purple, Fibonacci Retracement levels in royal blue, and the 14-period RSI in pale blue in the indicator box below the charts.