Mid-Day Report: Euro Weakens, Dollar and Sterling Rebounds to Close the Year
| Dec 30, 2008 07:00PM ET
First of all, wish our readers happy and prosperous 2009!
Just after we mentioned the possibility of reversal in Euro yesterday, selling of the common currency intensifies in thin holiday trading on New Year's Eve. Most importantly, EUR/GBP dropped over 300 pts to to as low as 0.9473 in early US session. Bearish divergence condition in 4 hours MACD and RSI argues that a short term top is formed at 0.9799 and more weakness will likely be seen, probably to retest 0.9 psychological level. EUR/USD is back below 1.39 and is set to test key near term cluster support at 1.3629. EUR/CAD will probably test double top neckline support at 1.6750 too. Note that Euro's rally in Dec is partly fueled by speculations that ECB will pause rate cut in early Jan but markets are getting doubtful on such expectations as outlook of the Eurozone economy is getting worse. Some more profit taking on Euro longs could be seen leading to to ECB meeting on Jan 15.
Elsewhere, Dollar and Sterling ride on Euro's weakness and rebound strongly. The greenback is additionally lifted by unexpected fall in initial jobless claims to 492K, first sub-500k reading since the week ended on Nov 1. Dollar index is resuming the rebound from 77.69 level. As mentioned before, we're still favoring the case that fall from 88.46 is merely a correction in the larger up trend and has completed at 77.69. Focus remains on 83.11 cluster resistance (50% retracement of 88.46 to 77.69 at 83.07), and decisive break there will affirm this case and retain the long term bullish scenario.
While a short term top is likely in place in EUR/GBP, GBP/JPY is possibly bottoming out at 129.71 too. As discussed before, GBP/JPY's decline from 215.87 is expected to conclude after being support by 129.32 key long term support and focus will continue to be on reversal signal.
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