On Tuesday the Euro continued its local growth. The main trigger was the general background; aggressive policies of the Japanese CB to be more specific, which lead to an abrupt fall of the Yen. As a result Japanese investors received an opportunity to invest their funds in European securities, rates on which are much higher. The ECB head Mario Draghi stated, that instruments of influence at his disposal can’t solve all the problems in EU. It appears that behind that there is a reluctance to undertake monetary policy similar to the ones of the FRS and the bank of England. In other words that policy is fighting against recession with money emission, proudly calling it a “quantitative easing”. Absence of active measures to stimulate growth only exacerbates recession. In the current situation weak Euro could be quite useful in order to defend domestic market and to support exporters. One can recall a situation a few months ago, when the pair could get up to 1.37, and European politicians were criticizing an unfair exchange rate. French socialists, who recently got power, have even started to discuss some system of control over currency rates formation. Draghi opposed any attempts to intervene with manipulating rates. On the other hand everybody understands that if Draghi really wanted to weaken the Euro, it would have been done under cover of urgent measures of economic support. A good example of doing so was demonstrated by Tokyo. If the ECB goes on postponing serious actions, then because of the lengthy recession a lot of woes in peripheral states will get worse. All that is going to have a negative impact on the European currency. Meanwhile a new candidate for receiving financial aid from Brussels has appeared. Events are developing very fast in Slovenia. Recently the profitability on 10 year national bonds almost reached 7%. In spite of the fact, that authorities of Slovenia have rejected even the very possibility of any aid from outside, if the rates continue growing, then there will be no choice. It is not ruled out, that the ECB will have a chance to demonstrate at last an effectiveness of Eurobonds’ purchase. There is no influential macroeconomic statistics planed, so the Euro will most likely remain under influence of Tuesday events. Perhaps after some short term local growth, the Euro will fall under impact of general EU negative background, and the market will turn into a bearish one. The most interesting even awaits us on Thursday, when there will be next G20 summit, and besides it will be conducted against the background of revising of economy growth for the next year.
The Euro breaks above its former resistance at 1.3138, and continues to appreciate from 1.2747. In the short term bullish trend is assumed. Next target will be at 1.3300 area. Support is the upward trend line. A break below will signal the end of upward trend.
Further rise to test resistance line at 99.94 is possible now. If it is broken, the momentum can take it up to 105.00. On the downside, if 99.94 resistance holds, the consolidation of the uptrend will most likely continue. It will be completed by the subsequent dip to 94.00 – 94.50.
The Pound remains in uptrend from 1.4831. Resistance is at 1.5411. If it holds, consolidation will most probably continue. In case of a break on the upside, the pair is expected to resume its upward movement with a next target of 1.5500.
Tentative EUR German 10-y Bond Auction
9:30am USD FOMC Member Bullard Speaks
10:00am CAD BOC Monetary Policy Report
CAD BOC Rate Statement
CAD Overnight Rate
10:30am USD Crude Oil Inventories
11:15am CAD BOC Press Conference
12:00pm USD FOMC Member Rosengren Speaks
2:00pm USD Beige Book
4:00pm USD Treasury Sec Lew Speaks