European and Asian traders returned to their trading desks today after a long 4-day weekend and seemingly saw the recent pullback in the US dollar as a buying opportunity. As we go to press, the trade-weighted dollar index is rising by over 0.6% on the day, EURUSD is trading down over 150 pips from yesterday’s high, and USDJPY has regained the key 120.00 psychological level. Clearly, traders are viewing Friday’s disappointing NFP report as a one-off anomaly that is unlikely to drastically change the Fed’s interest rate hike plans; as a result, King Dollar is climbing back to his thrown, just slightly worse for the wear.
There were a couple of second-tier economic reports released earlier today (Spanish and Italian Services PMI came out better than expected, as did the UK Services PMI report), but the biggest story is still Greece’s debt negotiations. In its latest act of political theater, the Mediterranean country is now demanding over $300B in World War II reparations from Germany, likely in an effort to negotiate more favorable terms in the coming bailout negotiations, though all its done so far is harden relations between Greece and Germany.
Meanwhile, Greece has an upcoming debt payment of about €450M due to the IMF on Thursday, which Finance Minister Yanis Varoufakis has reiterated that Greece intends to pay. That said, the country remains in dire straits and even when it manages to make this week’s payment, Greek policymakers must still come up with a funding agreement at the Eurogroup meeting in two weeks’ time (April 24th). As long as Greece’s debt negotiations continue, the euro will struggle to gain any meaningful traction to the topside.
Technical View: EURGBP
For nearly two years now, EURGBP has been a one-way trade lower. Over the last few weeks though, the pair saw its biggest rally since May 2013, causing some optimistic traders to hope that the long downtrend was finally coming to an end. This week’s price action has damaged that upbeat outlook, however. Rates stalled out against the 38.2% Fibonacci retracement near .7380-90 for the second time yesterday, creating a potential double top pattern at this key barrier. Meanwhile, the RSI indicator has formed a clear bearish divergence, showing waning buying pressure in last week’s rally.
From here, traders will be watching the .7220 level, which represents the neckline” of the budding double top pattern. If EURGBP breaks through that floor, a deeper retracement back toward .7100 or even the 7.5-year low around .7000 could be in play. Given the long-term downtrend, the bears will maintain the upper hand as long as EURGBP holds below .7400.