Euro Strengthens After Upbeat Economic Data & ECB-Speak

Yay for the Euro!!!

The euro is stronger on Friday after some upbeat economic data and a barrage of comments from European Central Bankers earlier in the day.

Earlier in the day Eurostat reported that industrial new orders were up 1.6% month-over-month in November, faster than forecasts for a 0.5% increase and better than the prior 1.9% pullback. Annual orders fell 1.5%, also better than expectations for a 7.1% contraction and prior 14.4% decline.

Meanwhile, on the policy front, in an op-ed piece in the Financial Times, Greek central bank head, George Provopoulos said that it will be "unequivocally easier" for Greece to resolve its problems within the framework of the euro zone.

Also of interest were comments from Governing Council Member Jose-Manuel Gonzalez-Paramo that the very idea of a European bailout of Greece from its budget problems was "absurd".

EUR/USD last traded higher by 40 pips at 1.4123 after trading in a range of 1.4066 to 1.4166 so far today. Short term support lies at 1.4066 and 1.4029. Resistance comes in at 1.4221.

While the comments and the data appear to have taken some of the negative focus away from Greece, the big questions remains how EUR/USD will react to the Obama Administration's latest initiative to limit the size of U.S. banks.

Earlier on Friday, Reuters' sources reported that U.S. Treasury Secretary Timothy Geithner is allegedly concerned that the recent measures might hurt the competitiveness of the broader financial system.

The report contrasts with an interview which Geithner gave on Thursday with PBS, where he said that banks should not use the U.S. government's safety net to subsidize risky behavior, and that financial institutions should not be allowed to become so big that they threaten the U.S. financial system.

The FX fallout from these comments are abstract given the lack of confidence from Geithner's decision. In theory, confidence in the USD could be shaken if Obama's administration doesn't appear to be behind the latest initiatives.

USD Rises On Talk the PBOC Will Continue Tightening Monetary Policy

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The U.S. dollar is outperformed only by the commodity currencies on Thursday morning in the aftermath of speculation the PBOC will continue tightening monetary policy.

Earlier in the day, Chinese real GDP advanced 10.7% year-over-year in Q4, above the expected 10.5% gain and the revised 9.1% increase in the previous quarter, prompting speculation of additional monetary policy tightening in the region.

Indeed, China's December CPI gained 1.9% year-over-year in December, overarching the expected 1.4% increase and the previous 0.6% rise. Meanwhile, producer prices rose 1.7% on the year, above expectations for a 0.8% rate, and following the 2.1% decline in November.

Following the publication of the results, the People's Bank of China hiked the yield on three-month bill by 4 bps to 1.4088%, its second such move in 2009, and in a press conference, Chinese head of the National Bureau of Statistics Ma Jiantang told reporters in Beijing that the country now faces the challenges of balancing economic growth and inflation.

On the surface, the key question remains how quickly the central bank is willing to tighten policy in response to the data. After all, the PBOC has already raised the yield on three month bills twice this year and the yield on one year bills once.

More importantly, however was the 50 bps increase in the reserve ratio on financial institutions, which effectively means banks need to hold a greater proportion of liquid cash in the vault to cover their deposits. Such a move forcibly pulls money from the financial system and forces interest rates higher.

So far this month, tighter monetary policy from China has meant a stronger USD and yen, and this morning was no exception.

So far today, EUR/USD traded has in a range of 1.4029 to 1.4137, after last trading lower by 22 pips at 1.4083. Short term support lies at 1.4008 with resistance at 1.4512.

Meanwhile, cable last traded lower by 66 pips at 1.6226 after moving in a range of 1.6126 to 1.6312 today. Short term resistance lies at 1.6458 with support at 1.6116.

USD/JPY traded in a range of 91.19 to 91.88 today, and was last higher by 31 pips at 91.55. Short term resistance lies at 92.05 with support at 90.32.

Sterling Spikes After BOE Minutes & Jobless Claims

Srerling! Sterling!

Sterling is managing to outperform all but the USD and yen on Wednesday after a strong employment report, and talk that the Bank of England was shifting to a neutral stance.

Earlier in the day it was reported that the Bank of England unanimously voted to leave rates at 0.50% and the Asset Purchase Facility unchanged at 200 billion when the Monetary Policy Committee last met on Jan. 7.

More importantly however was the affirmation that it is becoming "increasingly probably" that CPI will rise to "well above" the 2.0% target in early 2010, and that CPI will return to target after near term price shocks have work their way through.

The development suggests that the central bank is moving away from additional monetary policy easing, a development which although suggested, had yet to be priced into the markets. In theory, this should support a stronger pound sterling.

In addition, the Office For National Statistics said that UK jobless claims fell 15.2k in December, further than expectations for a 4.6k pullback and revised 10.8k fall in November.

The claimant count rate was unchanged at 5.0%, as expected.

In the immediate aftermath of the announcements, which both came simultaneously, GBP/USD rallied 43 pips to 1.6324, while EUR/GBP fell 228 pips to 0.8707.

Nevertheless, the USD has managed to be the big winner of the day on the back of earlier reports that China was tightening bank lending, and a fresh snag in the U.S. Healthcare overhaul bill, as Senate Democrats lost a critical vote after Republicans snagged the seat in Massachusetts last night.

GBP/USD last traded lower by 65 pips at 1.6286, having traded in a range of 1.6244 to 1.6372 so far today. Short term resistance lies at 1.6458 with support at 1.6211.

EUR/GBP last traded lower by 794 pips to 0.86526, after trading in a range of 0.86528 to 0.87345. Short term resistance lies at 0.86957 with support at 0.86313.

Euro Under Pressure, Sterling Holds Its Ground

Yikkesssssss

The U.S. dollar is outperforming the European currencies on Tuesday, but the euro is the biggest lower after some downbeat economic news for the regions.

Earlier on Tuesday the German ZEW economic optimism index fell to 47.2 in January, further than expectations for a decline to 50.0 from 50.4 the month prior and the current conditions index rose to -56.6, less than expectations for an increase to -56.2 from -60.6.

In the minutes following the announcement, EUR/USD fell 34 pips to 1.4321, before moving lower to an intraday low at 1.4264.

The currency has also been under added pressure throughout the morning on the back of concerns surrounding Greece’s ability to finance its budget deficit.

The next support level to watch will be 1.4258, followed by a critical support level at 1.4218, a breach of which will open the way for a new four-month low in the pair.

Across the Channel, sterling remains under pressure against the U.S. dollar, but is outperforming other major currencies after an inflationary CPI report on Tuesday.

CPI rose 0.6% month-over-month in December, faster than calls for a 0.3% increase and prior 0.3% gain. Annual CPI was up 2.9% compared to calls for a 2.6% increase and prior 1.9% pickup.

In the immediate aftermath of the release, GBP/USD rallied 37 pips to a fresh intraday high at 1.6458, as markets participants priced in a more hawkish response from the Bank of England, whose mandate it is to control inflation.

Sterling’s resilience on Tuesday is also being attributed to a deal being struck between Kraft Foods buying UK confectioner Cadbury for $19 billion. The deal seals months of bargaining between both firms and is a boon to the pound sterling given that Kraft will logically have to buy pounds to pay for the deal.

Sterling nevertheless remains weaker against the U.S. dollar, which has benefitted from tighter monetary policy in China.

So far today, GBP/USD has traded in a range of 1.6320 to 1.6458. Short term resistance lies at 1.6421 with support at 1.6137.

Meanwhile, EUR/GBP has traded in a range of 0.8731 to 0.88104 today. Short term resistance lies at 0.89670 with support at 0.87053.

Euro Under Pressure As Finance Ministers Meet

Euro is under pressure!!! Looks like it needs a massage..hehehe...

The euro is under some pressure on Monday on the back of a light day for economic news and data, and as euro zone Finance Ministers meet to discuss the fate of Greece.

Finance Ministers from euro zone nations are meeting in Luxembourg for a regularly scheduled meeting on Monday, where a variety of topics will be discussed from the economy, to the reappointment of Eurogroup President Jean-Claude Juncker, to the debate over who will be the next Vice-President of the European Central Bank, to Greece’s fiscal position.

There is talk from traders that the group is planning a harsh statement on the state of Greece’s public finances, as well as the disorganization within the country’s national statistics agencies.

The moves in the European currency are also being influenced by a low-volume trading day in the United States, which is closed for Martin Luther King Jr. Day.

EUR/USD last traded lower by 13 pips at 1.4374. So far today, the pair has traded in a range of 1.4335 to 1.4394. Short term support lies at 1.4335 with resistance at 1.4579.

Meanwhile, EUR/GBP last traded at 0.88101, down 351 pips. So far today, the pair has traded in a range of 0.87826 to 0.88395. Short term resistance lies at 0.90282 with support at 0.8772.

The question lies in whether or not the meeting will yield anything that the markets haven’t already priced in.

Euro Under Pressure After Status Quo ECB Policy

Euro is still under pressure!!!

The euro remains under pressure on Thursday after the European Central Bank suggested the status quo monetary policy for the coming months.

After leaving its benchmark interest rate unchanged at 1.00%, as expected on Thursday morning, central bank President Jean-Claude Trichet affirmed that rates were “appropriate” and that the economy would continue to expand at a “moderate” pace with inflation “subdued over the policy-relevant horizon”.

While the rhetoric appeared similar to that of previous meetings, the differences came on the subject of Greece, whose debt rating now falls below the minimum standards to be accepted at the central bank’s open market operations.

“We will not change out collateral framework for the sake of any particular country”, said Trichet when asked whether or not the ECB would consider making an exception for Greek government bonds.

Earlier this morning Greece unveiled plans to bring the country’s spending within the limits outlined by the European Union by 2012. In addition, a new report from the Moody’s ratings agency suggests that the country has little time to address its budget concerns before facing further ratings cuts.

The comments, combined with the view that monetary policy would continue to remain loose, put downward pressure on the euro throughout the morning session.

At 11 a.m. EST, EUR/USD was down 47 pips at 1.4464 after trading in a range between 1.4459 and 1.4556. Short term support lies at 1.4554. The Fibonacci level at 1.4570 presents itself as the next resistance, followed by 1.4679.

Meanwhile, EUR/GBP was down 363 pips at 0.88756, after trading within 0.89695 to 0.89358. Key short term support is at 0.8847 with resistance at 0.8953, 0.9027 and 0.9055.

Sterling Strengthens After Hawkish Comments from BOE Member

Getting even stronger....!!!!

Sterling is Wednesday’s outperformer after some hawkish talk from a Bank of England policy maker earlier this morning.

Bank of England Monetary Policy Committee Member Andrew Sentance told the Guardian newspaper that the central bank should pause its bond purchases to as to gauge the risks to inflation.

Furthermore, when asked whether investors should bet on stable interest rates for 2010, he responded, “It would not be wise to put yourself in that camp. A lot can happen in a year.”

The comments were enough to offset an unexpectedly weak manufacturing report from the region.

The country’s November manufacturing production came in flat for November despite forecasts for a 0.2% increase and after a flat reading the previous month’s level.

Annual production was down 5.4% in November, faster than forecasts for a 5.1% decline and prior 7.8% slide.

Meanwhile, industrial production rose 0.4% month-over-month in November, faster than calls for a 0.3% increase and prior flat reading, and annual production was down 6.0%, just slower than expectations for a 6.1% slide and previous 8.4% contraction.

In the immediate aftermath of the release, GBP/USD briefly popped lower by 29 pips to 1.6238, before rebounding higher.

GBP/USD last traded 122 pips higher at 1.6286 after trading in a range of 1.6137 to 1.6294 today.

Short term resistance lies at 1.6341 with support at 1.5897.

Note that Sentance is a well known hawk on the central bank’s board, and some traders have said the pound’s gains have been over exaggerated.