Yesterday, the EUR/USD traded right below the 1.23 mark. As the pair continued to fight an uphill battle. The negative global sentiment on risk and the publication of the Fed minutes were a good enough to weigh on the pair.
The euro changed hands in the 1.2265 range at the start of trading in Europe. During the morning session the news flow was mixed. There were few economic data, but as is mostly the case, the focus was political headlines. German Fin Min Schaeuble indicated that it could take until the autumn for the Constitutional court to give its judgment on the bailout fund and the fiscal compact. On the other hand, Spain announced a new set of budget measures to reduce the public deficit by €65 bln by 2014. Spanish bonds and the Spanish equity market outperformed yesterday.
However, the impact on the single currency was limited. The pair moved away from the 1.2234 low reached on Friday and tried to for a test of the 1.23 area to times, but a real test didn’t occur, indicating that there was no big appetite to reduce euro short positions. So EUR/USD returned to the mid 1.22 area early in US trading as global/European equity markets had to give up (most of) the early gains. The US trade deficit narrowed more than expected but the report had no lasting impact on EUR/USD trading. EURL/USD reached another minor now low late in the European trading session. However, the dollar lost some ground going into the publication of the Minutes of the previous Fed meeting. The Fed kept the door open for more policy stimulation if needed.
Markets had apparently hoped that the commitment of the Fed would have been a bit more concrete. In a first move, equity investors were disappointed and the dollar jumped higher, pushing EUR/USD to a new correction low of 1.2213. Later in US trading, equities did find their composure and the rise of the dollar halted. EUR/USD closed the session 1.2239, little changed from the 1.2250 close on Tuesday evening.
Overnight, the news flow from Asia is mixed. The central bank of Korea unexpectedly cut its interest rate by 25 basis points while the labor market data in Australia showed an unexpected decline in employment. The action of the Korean central bank can be considered as growth supportive. However, investors are focused on the deterioration in the prospects for global growth. Asian equities are mostly in the red (China is the exception to the rule). So, sentiment on risk remains fragile. EUR/USD is changing hands near yesterday’s closing levels. So, the pair is still within striking distance of yesterday’s post Minutes low.
Later today there are again few eco data in Europe to inspire trading. The EMU industrial production data from May are interesting but outdated. The report is usually not important for trading. In the US, markets look out for the import prices and the jobless claims. There are some technical issues at play for the claims. So, a (positive?) surprise is possible. However, we doubt that one better than expected claims report will be able to remove investor’s distrust on the global economy. So, (EUR/USD) trading might develop in context that is quite similar to the previous days. At this stage there is no indication for a trend reversal in the EUR/USD downtrend yet. That said, we have the impression that the momentum of the decline is slowing. In addition, on days like today with few eco data on the calendar, trading might developed in holiday-thinned market conditions. We don’t see any reason to fight the EUR/USD downtrend, but short-term investors can consider partial profit taking/stop-loss protection on EUR/USD shorts.