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Euro and Sterling Bounce Back

The dollar was down across the board as the greenback gave back most of its late day gains from yesterday.

The euro recovered its losses and then some versus the dollar after yesterday’s rating downgrade of Greece by Moody’s. Helping to bring the euro off of its lows today were comments made by ECB President Trichet who spoke of further fiscal intervention in the euro zone and a decent Spanish bond auction. Liquidity was noticeably tighter with public holidays in France and Germany which may have helped ease the euro off of its lows. The jump in the EUR/USD this morning moved the pair above the 50% retracement level from the May decline at 1.4450. The next test will come at 1.4570 from the 61.8% retracement. To the downside the 1.4350 level may prove to be supportive.

Sterling came off of its low for the day after better than expected construction PMI numbers. The GBP/USD failed to move below support at 1.6300 and climbed as high as 1.6416. The pound could continue to move higher but the real test of sterling’s momentum will come at the 1.6515-50 resistance zone.

The yen is stronger versus the dollar after Japanese Prime Minister Kan avoided defeat in a vote of no confidence. However, sources say he will chose not to fulfill his entire term in office. The 80.60 support level has held this week but a breach here would allow the USD/JPY to decline to the next support at 80.35. Resistance is found at 81.75 and at 82.20.

After yesterday’s sharp drop in US equities the early price action from this morning should not be confused with the “risk-on” nomenclature. The Nikkei is down- 1.70% while the London FTSE is lower by -0.75%. Crude oil is marginally higher as the commodity treads water just above $100 a barrel.

US data releases this week have done little to support the greenback as highlighted by yesterday’s weak ADP job numbers and the recent trend of weak US economic data feeding into USD buying is beginning show cracks. Economists have begun lowering their forecasts’ for Friday’s NFP jobs report. Storm clouds are beginning to form over the head of the US economy given the Fed’s QEII program is due to end next month and little has been proposed on the policy front to address the recent US slowdown. The payrolls report tomorrow may intensify the negative sentiment.

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Russell Glaser

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.