FXstreet.com (Barcelona) - With the year-end market euphoria
slowly but steady losing its momentum, the European shared currency
approaches the London session in apparent tranquility at USD
1.3070. The Japanese Yen topped the climbers board vs G10
currencies on Tuesday, which continued to strengthen on profit
taking, followed by the US Dollar.
News that the Japanese government will engage in buys of the
European Stability Mechanism bonds was not enough to underpin the
Euro, which had a mere correction run in nature despite European
bonds across the bloc were higher on the day having benefited from
the kind Japanese gesture. Volatility in the Euro should be
depressed today, as traders remain sidelined ahead of Thursday's
European Central Bank meeting.
In the US, the phenomenon of higher bond yields, with the 10 year
U.S. Treasury yields up from 1.62% to 1.87%, 1-year high, according
to Kathy Lien, co-founder at BKAssetManagement, "reflects worries
that the Fed could end asset purchases in 2013."
Despite the first part of the fiscal cliff is out of the way, which
has somehow decreased the perception of uncertainty, Ms. Lien finds
it hard to believe that the fiscal cliff deal "has really brought
forth a new sense of stability because the performance of the
equity and currency market suggests that investors are still
It is a matter of weeks until the debt ceiling becomes a pressing
issues for US politicians, but in the meantime, as Kathy suggests,
"its all about earnings and comments from Federal Reserve
Ahead of the US debt ceiling negotiations, Sean Callow, FX
strategist at Westpac, thinks risk currencies "should suffer damage
at times, especially in mid- to late February" he notes. The
analyst seems confident that both the USD and Treasuries, "should
thus find safe haven demand as the Congressional name calling
reaches its peak" he adds.
Mr. Callow expands: "But with a ratings downgrade unlikely - at
least not yet - and investors likely to remain confident that
default is not seriously being considered, the damage to the likes
of AUD, EUR and NZD should be contained. The episode may well be
best viewed as a chance to buy dips in risk assets amid mostly more
favourable global conditions in H1 2013. But risks to this view are
skewed to the negative side for risk assets, with a prolonged
standoff more likely than a quick resolution."
The technical in EUR/USD, in view of Valeria Bednarik, chief
analyst at FXstreet.com, seem to indicate that the 38.2%
retracement of it latest slide at 1.3110 will be a tough short term
resistance to break ahead of the ECB. On the downside, a break
below 1.3040 area is necessary to expose 1.3000 price zone, Valeria
says, adding that further slides are not yet seen.