The U.S. dollar retained strength after further declines in Germany’s IFO business survey and an unrevised U.K. fourth quarter gross domestic product (GDP). The dollar shrugs rising oil prices resulting from Iran’s defiance of a United Nations imposed deadline to stop enhancing its nuclear enrichment. Oil prices reached their highest level for the year at $61.46 per barrel earlier today before retreating towards the $61 figure. Oil prices rise to a fresh nine-month high at $681.70, adding to a weakening foundation for the dollar's overall sentiment.
There are no key data releases from the United States today, but next week’s avalanche of U.S. economic data: new home sales, existing home sales, Q4 GDP revision, ISM and core PCE, will be paramount.
Especially important will be Wednesday’s fourth quarter GDP release, which could be revised to as low as 2.3% from the initial reading of 3.5% following lower retail sales and a rising trade gap, suggesting that the much anticipated rebound from the 2.0% reading in the third quarter would have never take place.
Federal Reserve Presidents Fisher will speak at 10.45 am and San Francisco President Yellen will speak at 3:35 pm.
EUR/USD discouraged by second monthly IFO drop The IFO’s Business Climate Index fell to 107 in February (exp 107.5) following a decline to 107.9 in January, while the current assessment index fell to 111.6 (exp 112) from 112.8. Retailers were less upbeat mainly due to the increase in value added tax (VAT) imposed last month. But the survey also reported a retreat in confident beyond the retail sector.
EUR/USD is seen supported initially at 1.3090, but traders are unlikely to drag the pair below the 1.3065 support ahead of Monday’s scheduled meeting of U.N. Security Council permanent members and Germany to discuss further sanctions against Iran. EUR/USD gradually retraces yesterday’s spike to 1.3140 following yesterday’s reports that Iran plans to build as many as 3,000 centrifuges. The 1.3067 support marks the 50% retracement of the 1.2943-1.3192 rise and the trend line support since Feb. 12. Key foundation stands at 1.3032, which is the closing rate in January—a key technical measure. Resistance stands at 1.3140.
USD/JPY unable to breach trend line
USD/JPY tops out at 121.60, just below the 121.80 trend line resistance holding since February 11. Both the MACD and stochastics on the four-hour point to reduced momentum, which is likely to see the pair settle at the current 121.20-30s. Traders must pay attention to next week’s market-influencing data from the United States (new home sales, existing home sales, fourth quarter GDP revision, ISM and core PCE). Support stands at 121.00, followed by 120.8.
Sterling capped at 1.9650
The United Kingdom’s fourth quarter GDP growth was confirmed to have risen 0.8% from the previous quarter and 3.0% from the same period a year ago. Consumer spending rose 1.0%, more than doubling from third quarter, paving the way for at least one more rate hike this year. We expect U.K. rates will peak at 5.50%, with one more tightening in the pipeline in second quarter. Last week, the central bank indicated inflation would fall within the 2.0% target based on an assumption of more tightening. Yesterday, MPC member Charles Beane hit sterling with a double punch saying CPI is likely to drop back sharply this year well below the 2% target, while the strong pound will complicate matters for exporters.
After struggling to breach the 1.96 figure, cable may approach its interim support of 1.9566, which is likely to be followed by stability at 1.9545—the 38% retracement of the 1.9463-1.9597 move. It is unlikely that we will see a decline below 1.953 due to the geopolitical uncertainty regarding Iran and the potential of event risk over the weekend. Upside starts at 1.96, followed by 1.9620. A breach above the four-week triangle resistance will target the key barrier at 1.9650.
Ashraf Laidi Chief FX Analyst CMC Markets US 140 Broadway, 30th Floor New York, NY 10005 (212) 644-4220 (212) 644-4222 fax
a.laidi@cmcmarkets.com
