The EUR’s break above the EUR/USD 1.3735 resistance level reflects a turn in the sentiment with respect to the EUR. EMU officials most notably the ECB’s Trichet and European Commission’s Juncker have both thrown their weight behind Greece, suggesting that the government’s austerity initiatives have been convincing. The near-term outlook for the EUR is to continue its oversold bounce higher, a move up towards the USD1.3850 now looking likely. Above that level could trigger a larger short squeeze toward the 1.4000 area, where we would consider re-selling the EUR/USD.
Medium-term the road back to fiscal stability is likely to be a tough one for many parts of the eurozone suggesting the possibility of further volatility in EUR/USD. The coming release of eurozone CPI data is expected to show a softening in the core inflation rate may highlight the potential for interest differentials to move in favour of the USD in the latter stages of this year.
The GBP has also been squeezed higher in a rush to cover short positions. The news, however, remains predominantly negative for the pound. Opinion polls continue to place a high probability on a hung parliament after the UK general election. This heightens the threat that no strong action to tackle the huge budget deficit will be taken.
With economic data likely to be increasingly overshadowed by politics in the coming weeks, sterling is likely to remain on the defensive.
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Medium-term the road back to fiscal stability is likely to be a tough one for many parts of the eurozone suggesting the possibility of further volatility in EUR/USD. The coming release of eurozone CPI data is expected to show a softening in the core inflation rate may highlight the potential for interest differentials to move in favour of the USD in the latter stages of this year.
The GBP has also been squeezed higher in a rush to cover short positions. The news, however, remains predominantly negative for the pound. Opinion polls continue to place a high probability on a hung parliament after the UK general election. This heightens the threat that no strong action to tackle the huge budget deficit will be taken.
With economic data likely to be increasingly overshadowed by politics in the coming weeks, sterling is likely to remain on the defensive.