The stock market’s rally cut euro down
Yesterday dollar bulls flat main rivals on their backs. Well, the Eurozone PMI were weak, but it was expected; well, American data look better against the background of European ones, but they weren’t so significant yesterday. The main reason was rally in stock markets. It should be admitted that the end of New Year holidays in China facilitated change of moods in the stock market. Investors have become more optimistic about Chinese authorities’ actions to restrain development of negative processes in Chinese economy and hope for new stimulation measures by Chinese regulator. Appeared positive signals in American economy also support this optimism. Nevertheless, now behavior of currencies fully depends on dynamics of the stock market – euro is falling, trade currencies are growing on increase of the stock market and vice versa. Herewith risk appetite is exposed to sharp fluctuations. Under these conditions, the market has chosen yen as a main defensive asset. In case of any threat in the stock market, it usually starts to strengthen, despite expressed threats to use currency interventions. British pound lives its own life – all is related to British membership in the EU. Unexpectedly great opposition within the cabinet, which Cameron faced after the return from difficult, but quite successful negotiations, became a big surprise for investors and pound collapsed.
We presume that today’s economic statistics will change little in power balance of the exchange market after previous day. The best we can hope for is consolidation in limited range. After such beating of main rivals, dollar has all chances to continue growth. Still, today’s data can just strengthen the market’s confidence in correctness of yesterday’s rally of dollar. Speaking of the Eurozone, today there is the second evaluation of German GDP for the 4th quarter and IFO report on moods in business environment. The first indicator doesn’t stand out among the similar ones for last year – even figures, but IFO is likely to continue outlined decrease of confidence in the Eurozone. So, there are many chances for further decrease of European currencies. Slight slowdown of dollar can occur at American session after publication of US statistics – houses sales in the secondary market and consumer confidence. For last months, both indicators have stabilized and fluctuate at approximately the same levels now. Their moderate decrease (what forecasts promise) doesn’t change the picture, still, it is able to limit growth of the stock market as well as dollar in the short term.
The breakthrough of support at 1.1060 in EURUSD pair has considerably changed technical picture, at least in the short term. Now further decrease to levels 1.0970 – 1.0990 is probable. At this moment pair’s purchases can be forgotten. To aggressive traders we recommend considering pair’s sales in the range 1.1050 – 1.1070, stop at 1.1130 with initial aim at 1.0990. In case of a pair decrease of more than 30 points from the entry point, rearrange stop at the entry point. The risk is hidden in dynamics of the stock market. Asian indices as well as American futures are in minus now, what influences USDJPY pair, which has grown on this instability at morning trades.
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