EUR/usd
The single currency withstood the pressure which followed the message from S&P. On Monday night, the rating agency declared that it would send ratings and/or outlooks on 15 of 17 euro area countries for review, if the EU summit this Friday didn't lead to any significant progress. The euro went down to 1.3330 at a certain moment yesterday. However, later it managed to recover and close the day near 1.34. Now the pair is trading with a small gain near 1.3415. The newswires associate this firmness of the euro with the report in the Financial Times which says that the EU summit can get two rescue funds totaling 900 billion euros and, in addition, get strong support from the IMF. This is good news. However, during these two years markets have been constantly dissatisfied with the results of EU summits. The outcome of each of them failed to meet the requirements of the time and actions didn't keep up with the pace at which the situation was worsening. Be careful as no-one is immune to the same turn of events this time. So, why isn't the euro falling? Just because it has already been sold by everyone who has had such an opportunity. Short positions on the single currency have been increasing for a long time. At a certain point this may end up with triggering a lot of stops. Thus, in May 2010, when the CFTC data marked, just as now, more than 100K lots of short positions, the euro initially slid easily from 1.33 to 1.1875, but during the period of June-July it won its losses back and then reached 1.40 in October.
GBP/USD
Now Britain looks like the alter-ego of the euro area. At the end of Tuesday's session the British currency fell against the dollar from 1.5640 to 1.56, where it is trading now. Even weak data on prices in the housing market were not of help. The index of house prices from Halifax unexpectedly went down by 0.9% m/m, though it had been expected to remain unchanged. The fall to the previous year made 1.0% 3m/y. Today the pound can also get its pinch of salt on the release of industrial production data. Now it is expected to decline by 0.3% m/m and 0.7% y/y. On the basis of these data NIESR will later publish its estimation of the British GDP growth in November. If Britain is destined to slide into recession later this year, these data will show us a serious decline compared to the last estimation of the growth by 0.5% for the period of 3 months ending with October. However, if the rumors about doubling of the European rescue funds get enough supporters, the increase in demand for risky assets will ensure the growth of the pound against the dollar. For now, the pair is making no headway.
USD/JPY
The last sentence is very true for the USD/JPY as well. From November 30 the exchange rate has risen from 77.30 to 78, and then has been adjusted to 77.70. For the last 24 hours it has been holding between 77.60 and 77.80. It seems as though traders had forgotten about the yen, having turned to trading the dollar with other commodity currencies and the euro on fluctuations of the demand for risk. The yen can pretend to be lifeless for a long time, but then it can suddenly move in any direction on some breaking news. Now the news background is mainly based on expectations, not facts, so Japanese traders prefer to sit in the sidelines. We are still sure that the steep downward trend, associated with the financial crisis and started in July of 2007 is drawing to a close. Now the resistance line of this trend is running through 78.90, and the 200-day moving average is a little bit higher, at 79.20. In spite of all this the pair seems to have no strength to keep falling.
AUD/USD
Despite the RBA rate cut and its comments on the possibility of further easing of the policy, yesterday Australian aussie managed to almost completely restore from the drop caused by the Bank decision. It is not surprising! What other advanced economy can now show an increase of 1% for the quarter, and how many are able to go up by 2.5% for a year? Australia can. Oh, and their Treasury bonds are also sure to give you a handsome income of about 4% (it is yield of its 10-yrs) compared with those that are offered by the markets of Japan (1.05%), the USA (2.09%) and of powerful countries in the mainland Europe, like Germany (2.18%), Denmark (2.18%) and Switzerland (0.83%). (Frankly speaking, are there any really safe countries in Europe now?)
