IG Markets - Forex Focus September 1, 2010

IG Markets - Forex Focus

September 1, 2010

EUR/USD

Details
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Prev close 1.2663 52 week high 1.5144
Last trade 1.2721 52 week low 1.1877
High 1.2738 Low 1.2625

Bloomberg Median Forecasts
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Q1 2010 1.39 Q3 2010 1.25
Q2 2010 1.25 Q4 2010 1.25

Commentary
Early on today, the euro was able to recover a majority of the losses incurred from the start of the week, but later ran into some headwinds as the US markets got going. The economic announcements out of the euro area earlier today were pretty much on par with expectations. In Germany, the ranks of the unemployed contracted yet again, this time falling by 17K. While not the decline expected, this figure still seems to indicate that labor conditions in the euro area’s biggest economy are at least slowly improving. There were no surprises in the Consumer Price Index data which met expectations at 1.6% for the euro area, while the overall Unemployment Rate for the region remained at 10%. While the economic news was definitely not positive, it seems that at least the lack of negativity was enough to prompt traders to determine that the sell-off to start the week may have been a bit overdone. The news in the US though, had a slightly more positive tone, and this helped the dollar to stiffen up a bit against the common currency. It’s still anyone’s guess as to what the long-term prospects for this pair really are. In such a murky economic environment, it’s likely that in the near-term we continue to see quite choppy price action. For now the near-term resistance level still looks fairly strong in the zone indicated last week between 1.2780 and 1.2800. The bottom of this zone also now represents Monday’s high water mark for this pair. If the euro starts to slip, support may be found between 1.2580 and 1.2600 with an extended move for the dollar perhaps making it to the next zone between 1.2470 and 1.2490, before becoming exhausted. Dan Cook, Chicago

GBP/USD

Details
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Prev close 1.5462 52 week high 1.6878
Last trade 1.5387 52 week low 1.4231
High 1.5475 Low 1.5363

Bloomberg Median Forecasts
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Q1 2010 1.60 Q3 2010 1.52
Q2 2010 1.47 Q4 2010 1.52

Commentary
The downward movement for the pound that started on Monday continued into today, and the UK currency has now dropped under last week’s lowest levels. There was only one major report out of Britain today that showed Net Lending to Individuals contracted yet again with only £300 million of new credit issued during July. This is the second month in a row that a large contraction has been seen and it was not a very positive sign for the UK economy that lending in July was only about 20% of that initially reported for May. Since the release of this report, the GBP has lost a little over 100 pips to the USD which brings the total drop since Monday to just over 240 pips. On the technical side, there are very few areas of previous support between today’s low and 1.5240. If today’s low does hold and the pound can break back above 1.5370 (the lows of last week), this pair would probably have a pretty fair shot at testing the area around 1.5475 before hitting any more resistance. There is still a lot of data to be released from both the US and Britain this week, including several crucial indicators of the employment situation in the US. Risk management on both long and short positions will be extremely important as choppy seas could lay ahead over the next few days. Dan Cook, Chicago

USD/CAD

Details
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Prev close 1.0601 52 week high 1.1103
Last trade 1.0655 52 week low 0.9931
High 1.0661 Low 1.0576

Bloomberg Median Forecasts
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Q1 2010 1.05 Q3 2010 1.04
Q2 2010 1.01 Q4 2010 1.05

Commentary
Since the North American trading session has gotten underway the greenback and the loonie have been trading in a very tight range of only about 40 pips. Month-over-month GDP figures in Canada showed the expected 0.2% growth. However, overall growth for the second quarter slowed to only 2%, almost one-third of what was reported in the first quarter. This is viewed as negative for the CAD;, but after already losing about 200 pips to the dollar over the last twenty-six hours, investors may have felt that enough was enough at this point and didn’t want to overextend on the long side. This view was supported with mixed data coming out of the US. The Chicago Purchasing Managers index fell to a reading of 56.7 from 62.3 but this was largely offset by a better-than-expected Consumer Confidence reading of 53.5. Interestingly, no matter how choppy the short-term action appears, the longer term technicals appear to be holding so far. The same resistance that we were watching last week near 1.0670 is still holding strong again this week. The prices within a few pips of this level represent the highs of June 6th and 30th, July 5th and August 24th and 25th. If this level holds as momentum dies off, a run back toward the area between 1.0475 and 1.0500 would seem to follow history. Dan Cook, Chicago

Notes: Bloomberg Median Forecasts are produced by Bloomberg by taking the median level from rates forecast by a number of contributors. These contributors consist of leading banks and security firms.
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