EURO: SETTING THE LONG TERM TREND?

EURO: SETTING THE LONG TERM TREND?

EURO: Setting The Long Term Trend?

by Angelo Airaghi [Guest Analyst]

9/15/2009

As the European economy is moving out of recession, the Euro currency is at key levels against the U.S. dollar. A movement above the next resistance could set the trend for the next weeks/months.


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U.S.: consumer spending to increase?

More time is needed to see some tangible results, but the economy is on the move again in the United States. Last week, the Beige Book confirmed that the economic activity is stabilizing, as the job market and the manufacturing sectors are registering some minor upticks. In reality, the average duration of unemployment is at historical highs and jobless rate for young people is almost 26%. Public offices are laying-off employees, since some states are registering declines in tax revenues. Initial jobless claims fell to 550,000 in the week of September 5th, versus the expected down move of 570,000. Nevertheless, they remain near the high of the year. Housing, at the contrary, appears to be finally out the woods. Inventories are declining, while building permits are increasing.

As a result, prices should start to climb again over the medium term, as well as new investments, since consumer spending is expected to improve. In July, the U.S. trade balance widened to USD -32 billion from USD 27.5 billion, supported by the strong move of imports, which rose 4.7%, while exports increased 2.2%. All major categories reported some gains, except food and beverages, probably anticipating consumer spending to return positive in the near future. In effect, retail sales were well supported in August. Nonetheless, gains might have been inspired by the cash-for-clunkers program. Automakers are meeting strong requests and the industrial production can rise shortly.

Europe: domestic demand improving

Good domestic and foreign demands are helping the German economy out of recession. In July, exports rose 2.3% month-on-month after having increased 6.10% in June, while imports remained flat compared to the rise of almost 6.0% registered the previous month. The trade surplus is now at Euro 13.9 billion from Euro 12.1 billion. Both manufacturing and services are beginning the trend again. For the fifth straight month, German factory orders rose 3.5% (2.50% expected) in July from June’s 3.8%. Nevertheless, orders are still 19.8% below the level of one year ago, but domestic demand increased 10.3% in July. In its most recent monthly bulletin, the European Central Bank (ECB) confirmed that growth should stabilize in the third quarter, although it could be uneven among the European states. The ECB is expected to keep rates steady for the near future, as inflation remains near the lows and the economic growth is just beginning the resume its uptrend. In fact, industrial production remains weak, albeit improving. In July, it fell 0.3% month-on-month and is down almost 16.0% on an annual basis.

EUR/USD: Resistance holding for now.

EUR/USD: The euro is still testing key levels against the U.S. dollar. A move above 1.4715 would target 1.48, 1.50. A breakout failure would take the price back to 1.45, 1.44.

GBP/USD: The market rebounded from the lower Bollinger bands and is finding resistance at 1.67. It corresponds to the higher Bollinger bands. A move above 1.6840 would target 1.69/1.70. A breakout failure would take the price again to 1.65, 1.64.

USD/JPY: The market is meeting a good support at current levels. Nevertheless, a move below 89.70 would target 89.00. A swing above 92.10 would target 93.00.

USD/CAD: The market has found a strong resistance at 1.11. It could correct to 1.0830, eventually 1.0630, if it moves below 1.0695. A breakout failure would take the price to 1.0940.

Angelo Airaghi is a Commodity Trading Advisor, registered with the National Futures Association and the Commodity Futures Trading Commission. He has been an active professional since 1990 working for major international financial companies. In the past 10 years, Angelo Airaghi has been an analyst and commentator for national and international media.