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29 Apr 2013
Euro resilience keeps the cross around 1.3100
FXstreet.com (Barcelona) - Finally, Italy was able to crack the political gridlock that has prevailed since late February, and with that, the shared currency has removed a tough obstacle that was hampering further progress in EUR/USD. However, the sustainability of future measures and of the government itself yet remains to be seen, although at the moment markets prefer to celebrate the new government and focus on this week’s ECB gathering, leaving the effervescence of the Italian political arena for some time in the medium term horizon.
… Anything else other than a rate cut?
Market participants have been building up hopes of a rate cut by the ECB on Thursday. In addition, many analysts have joined them, now pointing to an increased likeliness of a 25 bp cut in the benchmark rate. The argument regarding the efficiency of a lower refi rate was relegated to a secondary role so far, although consensus amongst analysts remarks that a more effective measure would be to act on the deposit rates. However, the central bank commanded by Mario Draghi has not given the least hint of the possibility of such a measure. On the positive side, if any, a rate cut would give the FX community the idea that something is being done in order to overcome the euro crisis, trying to impact on the investors’ confidence. A priori, a rate cur would of course be euro negative although its currency-wise negative effects would be tempered due to the high percentage of markets pricing in such a move. Once again, the subsequent press conference by Draghi would be more relevant than the previous ones, and a dovish tone here is expected due to the recent lack of fundamental improvement in the block, jeopardizing the ECB’s view of a recovery expected to kick in at some point during the second half of the present year.
At the moment, the pair is extending the 1.30-1.31 range evidenced in the last sessions, and this patter is expected to remain at least until the ECB gathering on Thursday.
When comes to the chances of a break higher, the initial hurdle arises at 1.3116 (38.2% Fibonacci retracement of the February-April fall), followed by 1.3201 (April 16th high) and then the area of 1.3220/30, where sit the channel support line set from April lows and the 38.2% retracement.
The initial support is located around 1.2950/75, where sit the 200-day moving average, the 23.6% Fibonacci retracement of the February-April decline and January lows. A breach of that area would then target December lows around 1.2880/85 en route to 1.2740 (2013 lows).
… Anything else other than a rate cut?
Market participants have been building up hopes of a rate cut by the ECB on Thursday. In addition, many analysts have joined them, now pointing to an increased likeliness of a 25 bp cut in the benchmark rate. The argument regarding the efficiency of a lower refi rate was relegated to a secondary role so far, although consensus amongst analysts remarks that a more effective measure would be to act on the deposit rates. However, the central bank commanded by Mario Draghi has not given the least hint of the possibility of such a measure. On the positive side, if any, a rate cut would give the FX community the idea that something is being done in order to overcome the euro crisis, trying to impact on the investors’ confidence. A priori, a rate cur would of course be euro negative although its currency-wise negative effects would be tempered due to the high percentage of markets pricing in such a move. Once again, the subsequent press conference by Draghi would be more relevant than the previous ones, and a dovish tone here is expected due to the recent lack of fundamental improvement in the block, jeopardizing the ECB’s view of a recovery expected to kick in at some point during the second half of the present year.
At the moment, the pair is extending the 1.30-1.31 range evidenced in the last sessions, and this patter is expected to remain at least until the ECB gathering on Thursday.
When comes to the chances of a break higher, the initial hurdle arises at 1.3116 (38.2% Fibonacci retracement of the February-April fall), followed by 1.3201 (April 16th high) and then the area of 1.3220/30, where sit the channel support line set from April lows and the 38.2% retracement.
The initial support is located around 1.2950/75, where sit the 200-day moving average, the 23.6% Fibonacci retracement of the February-April decline and January lows. A breach of that area would then target December lows around 1.2880/85 en route to 1.2740 (2013 lows).