EURUSD: double reversal sees resumption of the squeeze

The market continues to tease traders with its intentions as yesterday’s late reversal was in turn viciously reversed. What now? Another reversal? EURUSD appears to want to push higher.

Yesterday’s late bad news managed to reverse the risk rally that unfolded during the day, but the move didn’t hold and that reversal was in turn reversed ahead of the US equity session today as risk appetite soared back through recent highs, undeterred by the S&P downgrade of Spain and also more or less shrugging its shoulders at a fairly weak US GDP number relative to expectations. The optimists watched the orderly Italian bond auction today and quickly recovered from yesterday's hangover.

Today’s session also saw a reversal in the bond market rally overnight as well and thus a partial reversal in some of the JPY crosses on the day. EURJPY was well off its lows as I’m glad I inserted the caveat this morning on my EURJPY chart that the pressure remains lower “if we see current risk off conditions persist”. Lately, hardly anything has been persisting save for GBPUSD’s upside, as it is looking to register a rare 10th consecutive day of closing higher. The commodity currencies were all pulled higher by the robust recovery in risk on the day and despite recent (CAD excepted) declines in interest rate expectations that eroded fundamental support recently – particularly for kiwi this week after the reaction to the RBNZ.

Chart: EURUSD
EURUSD bears are suffering their 19th nervous breakdown today as the reversal overnight that created a tempting bearish pattern failed to hold lower and instead has so far seen an impressive outside bar today. If we end on a strong note today (an important caveat…) this suggests further near term strength may be possible into the 200-day moving average, though both bulls and bears must be chafing at the multitude of direction changes while the range faders have been having a field day for weeks.

Looking ahead
The performance from the single currency defies the conclusions one might try to draw from the news flow and suggests further potential for near term upside after yesterday’s treacherous head-fake that has so far proved a false signal for the bears. So the default expectation (barring yet another reversal!) would be a EURUSD battle with its 200-day moving average now just below 1.3500.

The market seems to be out of synch with much of the news flow of late, reacting to it logically at first but then reversing due to an overarching tendency for risk to always recover and the USD to never find durable support – this is creating a remarkable dissonance that must be respected for now, even if there is a measure of disbelief as we witness it. Let’s see if it can survive next week’s action packed calendar.

Have a great weekend and remember that next week we have the last of end of month flows on Monday, followed by a busy week for US data (ISM’s Tuesday and Thursday and the employment report on Friday) and the ECB on Thursday among other events.

Economic Data Highlights

• Sweden Mar. Retail Sales out at +0.2% MoM and +4.5% YoY vs. -0.3%/+3.4% expected, respectively and vs. +3.5% YoY in Feb.
• Sweden Mar. Trade Balance out at 4.8B vs. 7.0B expected and 6.2B in Feb.
• Norway Mar. Retail Sales out at +2.4% MoM and +9.6% YoY vs. 0.0% MoM expected and +7.4% YoY in Feb.
• US Q1 GDP out at +2.2% QoQ-Annualized vs. +2.5% expected and 3.0% in Q4
• US Q1 Personal Consumption out at +2.9% QoQ-Annualized vs. +2.3% expected and +2.1% in Q4
• US Q1 GDP Price Index out at +1.5% QoQ-Annualized vs. +2.1% expected and +0.9% in Q4

Upcoming Economic Calendar Highlights (all times GMT)

• US Apr. Final University of Michigan Confidence (1355)
• New Zealand Mar. Building Permits (Sun 2245)
• New Zealand Mar. Trade Balance (Sun 2245)
• UK Apr. Hometrack Housing Survey (Sun 2301)
• Australia Mar. HIA New Home Sales (Mon 0100)
• New Zealand Apr. NBNZ Business Confidence (Mon 0100)