The dollar traded higher against all but one of its G10 counterparts during the European morning Friday, ranging from 0.2% against GBP to 0.9% vs EUR. The only currency that managed to escape greenback’s strength was NOK, after the country’s Q3 oil & gas investments survey showed that companies see higher investments this year, compared to the previous survey.
EUR plunged after comments by German Chancellor Merkel that “strong euro makes reforms harder in Spain and Ireland”. In fact she’s wrong; the euro is actually quite weak. Its real effective exchange rate is back to the level of 2002, when EUR/USD was trading around 0.90, and the Eurozone is forecast to have a current account surplus this year of 2.6% of GDP, the same as China – hardly the sign of a currency that is too strong. Nonetheless the market listens to such statements and EUR/USD tumbled to fall below our support barrier of 1.1210, until it found some buy orders near 1.1170. The pair could decline further and challenge our next support zone of 1.1135. A break of that line could carry further bearish implications and target again the key territory of 1.1045.
EUR/GBP fell below the support (turned into resistance) barrier of 0.7265 (R1) yesterday and completed a double top formation on the 4-hour chart. Currently the rate is testing the support area of 0.7200 (S1), and since the short-term outlook is negative, I would expect a decisive move below 0.7200 (S1) to pave the way for our next support area of 0.7145 (S2). Our short-term oscillators detect accelerating downside speed and magnify the case for further downside extensions. The RSI entered its below-30 territory and is pointing down, while the MACD, already below its signal line, obtained a negative sign and is headed lower. On the daily chart, the pair has been trading in a non-trending mode since mid-March. Therefore, although we may see some near-term declines in the short run, I would consider the overall outlook to be neutral.
• Support: 0.7200 (S1), 0.7145 (S2), 0.7115 (S3).
• Resistance: 0.7265 (R1) 0.7315 (R2), 0.7385 (R3).