Market Optimism from Summit in Brussels
A marked optimism about the summit meeting of European leaders which is held on Thursday and Friday in Brussels is giving bullish strength relative to the euro and to a lesser extent the British pound and the Swiss franc.
The single currency failed to break 1.31during the Wednesday’s session, while the pound was around 1.62 during early American trading session.
The Australian dollar retook power in the last hours after China announced strong growth in its GDP. The Aussie is very dependent on China’s current situation. This country is the main destination for Australian exports.
As for the yen, it is bearish technically (bullish on charts) against the dollar. There is still the possibility of intervention by the Bank of Japan, which has not yet successful in finding the right action to prevent further strengthening of the yen against the dollar.
Of course, the general weakness of the U.S. currency concealed a stronger yen each day.
During Thursday’s session, retail sales will be released in the UK at 4:30 Eastern.
GBP/USD Technical Pattern
The pound is located within a technical pattern and with a short-term uptrend. Given that this pair has had a few movements in recent days. It has faced on the downtrend line, trying to close above 1.6170, as you can see on the chart.
Given that all markets are optimistic about the summit meeting of European leaders to be held on Thursday and Friday in Brussels, it may give impetus to the pound.
In this moment we recommend any position, because we are expected to take the market decision. If the pair breaks the downtrend line, we recommend buying above 1.6170. On the other hand, if the pair closes below 1.6129 fractal, we recommend selling but with caution, as the ransom demand from Spain, could push up the price of the pound.
EUR/USD Bullish Outlook
The Euro came out of the narrow price range. Yesterday we saw the euro exceeded 1.30 and followed quickly up to 1.3130. Now it is trading at this level. We believe the upward movement will extend at least to the level of 1.3250 as strong resistance.
Germany is open to Spain looking for a precautionary credit line from the European rescue fund. German Chancellor Angela Merkel gave a speech in favor of euro, saying that progress has been made against the debt crisis, but it will take years of “systematic work” to resolve the crisis. She also noted that Greece is changing its “way of thinking” and she is against a split EU into euro/non-euro.
While, the U.S. retail sales and CPI in September again exceeded the expectations of analysts.
Retail sales rose 1.1% last month, up from 0.6% expected, confirming the recovery in consumption in the United States. In its turn, the consumer price index increased by 1.1%. It was also higher than expected as well as the Wholesale Price Index which was released on Friday. A Labor Department report also showed that the cost of living in the U.S. increased in September for the second consecutive month, reflecting an increase in energy costs.
We expect a rebound of leading currencies for the short term as it is trading around weekly resistance.
Meanwhile, the yen which acts as a refuge from uncertainty reversed from the highs of last week and again is about the level of 79 units.
Gold hits lows, the current price is $ 1,744 and it has a very strong support zone. It seems unlikely that the breakdown of it could extend the bearish mood.
The EUR/USD pair stopped yesterday after the rally to 1.3138 strong weekly resistance because around that area it will continue to offer resistance, as you may see on the chart. It is likely to reverse to the level of 1.3010 fractal.
At a fundamental level, if Span finally asks for a bailout, the euro will trigger. Therefore, it is only recommended to buy this pair at the support level or if it is seen a pullback. If you have sales positions we recommend great caution as a new rally to 1.3250 is likely.
The pair had a strong resistance at 1.0290. Yesterday it broke this level and gained quickly positions and now is between the 200 day moving average periods. If the rate exceeds this level it will be very bullish for the next few days. It is likely to set back again towards 1.0290; now it becomes a very strong support. If you buy positions below 1.0290 we recommend keeping because it is expected the aussie to reach the level of 1.0400 in the short term.
Moreover, it is recommended buying above 1.0290, when there is a rebound to those levels.
Andrew E Martinho, Senior Account Manager