Euro Collapses on Technical and Fundamental Factors

FX Highlights

• US equity futures are mixed, following a weaker session in Europe based on a series of economic data and heightened volatility, trend of dampened risk sentiment is being reflected in weaker commodity prices as well, both oil and precious metals have pulled back from the highs of the session. Traders in the US will be back from holiday, and the return of volume in the marketplace may lead to an extension of the current trend or a trend reversal. Citigroup is scheduled to release earnings results at 8:00am ET this announcement may be a significant market driver.
• UK CPI rose 2.9%y/y, the most since 1997 when policymakers began recording the data. The increase in inflation puts the BOE in somewhat of a dilemma as current monetary policy is focused on generating growth, in lieu of countering inflation. With record amount of debt on the UK govt. balance sheet and rising unemployment, it will be challenging for the central bank to raise rates in the near future. Relatively speaking to other major currency pairs, the uptick inflation did prompt traders to purchase the GBP as the BOE may have to raise rates faster than its counterparts in regions like the Eurozone.
• German ZEW (Investor Confidence) declined to 47.2 vs. 50.4, the fourth consecutive drop, and a compounding factor to the already delicate Eurozone economy, most analysts anticipated a reading of 50, which is essentially a benchmark level to delineate between a stabilized or recessionary environment
• The pressure is on in Greece as EU Finance Ministers are seeking changes in fiscal policy that will reduce the country's current deficit, Mody's Investors Service stated that Greece's plan "Cannot be taken for granted", leaving the country's sovereign debt rating unchanged at A2, the lowest in the Eurozone. According to Bloomberg, Jean Claude Trichet stated that "No nation can expect and special treatment." This is clearly weighing on the Euro versus most of the majors from USD, GBP, and JPY.
• Commodity linked currencies like the AUD pulled back following a strong rally in the preceding session. The AUD fell from an intraday high of 0.9276 to 0.9196, most of the retraction can be attributed to volatility in the energy sector and a technical retracement as RSI signaled the currency was overbought above 0.9260

Upcoming Events

• US - No major economic data is due for release today
• CAN - No major economic data is due for release today

Easy Forex

Michael J. Malpede is Chief Market Analyst with Easy-Forex® and has previously been featured on Bloomberg TV, Bloomberg radio, Reuters, MarketWatch, Wall Street Journal, Chicago Tribune, Chicago Sun Times, Toronto Star and Nikkei press. In analyzing the markets, he draws from 29 years of Foreign Exchange Research as a Foreign Exchange Analyst.

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