Euro Fails To Hold 1.4000 Despite Improving Optimism, Pound Highest Since November.

Published May 27th, 2009 - 01:36 GMT

The Euro regained its footing after falling to an intra day low of 1.3927 after the EUR/USD failed to hold above 1.4000 which continues to serve as formidable resistance.



Talking Points
•    Japanese Yen: Exports Improve
•    Pound: Mortgage Approvals Improve
•    Euro: Fails To Hold 1.400
•    US Dollar: Housing Data On Tap

Euro Fails To Hold 1.4000 Despite Improving Optimism, Pound Highest Since November.


The Euro regained its footing after falling to an intra day low of 1.3927 after the EUR/USD failed to hold above 1.4000 which continues to serve as formidable resistance. Equity markets higher in Europe are helping support the pair as risk appetite continues to rise following the rally in U.S. market yesterday. A slight increase in French consumer confidence to -40 from -41 continues the trend of increasing optimism which was reinforced by the improvement in business sentiment to 72 from 71. However, the outlook for production significantly declined to -50 from -16 which should be a concern and may be a sign that future growth is still in the distance for the region.  ECB member Noyer testifying in front of the French Senate’s finance committee stated that the banking system still has the consequences of the credit crisis ahead of it which leaves potential risks for borrowers. If we see an break above 1.400 then the next level of resistance is at 1.4182-the 50.0% Fibo level of the 1.6041-1.2329.

The pound reached above the 1.600 price level for the first time since November, 2008 as the Sterling continues to benefit from improving optimism but failed to hold the level . Banks in the U.K. approved 27,685 new mortgages in April which missed estimates of 28,000 but was an improvement from the 26,671 the month prior. The housing sector continues to show signs of lif which is helping to put a bottom on the current downturn. However, resistance is ahead for the GBP/USD at 1.6031in the form oif the 38.2% Fibo extension of the 2.0155-1.3495 decline.

The Yen saw some brief support as the merchandise trade balance turned from a deficit into a surplus of 69.08 billion in April. The country saw the rate of decline of its exports slow to -39.1 from -42 which markets took as a sign that the country’s recession is easing. Additionally, small business confidence rose for a fourth month which is another positive sign for growth as they account fro the majority of hiring in the country. However, the broader theme of risk appetite put the USD/JPY back on its upward trend and push the pair back up to re-test the 100-Day SMA at 95.43. It appears that we could see the technical level broken leaving the May 20th high of 96.23 as the next resistance level.

The dollar continues to remain under pressure as the optimism fueled by the jump in U.S. consumer confidence yesterday has carried through Asian and European trading sessions. The improvement in sentiment overshadowed a decline in the S&P/Case Schiller home price index which could get more weight today if the existing home sales indicator confirms weakness in the housing sector. Economists are predicting an improvement to 4.66M from 4.57M in March. Additionally, the home price index is expected to disappoint the S&P Case Schiller report with a 0.2% gain. A positive housing report will add to the improving outlook for a economic recovery and could add to the bearish dollar sentiment.

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To discuss this report contact John Rivera Currency Analyst: jrivera@fxcm.com



 

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