Tuesday, 29 Mar 2011

Euro, Dollar Rise Prior to New York Open

The dollar made inroads versus the majors after comments by St. Louis Federal Reserve President James Bullard while the euro moved higher on expectations for an ECB rate increase.

During European trading both the euro and the dollar strengthened after European data showed German consumer climate was consistent with expectations at 5.9.

British current account came in below expectations, as the current account deficit increased to -10.5B from -8.7B. Forecasts were for a smaller increase to -10.3. The report had a mild up tone as the previous release was revised higher to -8.7B from -9.6B.

The dollar reacted sharply after comments by St. Louis Federal Reserve President James Bullard. During a speech in Prague, Bullard said the Fed may begin normalizing US monetary policy before recent global events have dissipated.

This put the dollar in the driver's seat and the dollar gained broadly versus the euro and the pound. At lunchtime in London, the EUR/USD was lower on the day at 1.4065 after trading as high as 1.4148. The GBP/USD was down at 1.5960 after trading at 1.6041. However, the euro continued to perform well versus the pound and the Swiss franc. The EUR/GBP was higher at 0.8810 but off its highs from 0.8834. The EUR/CHF was up at 1.2955 from 1.2896.

Equities were lower with the FTSE down -0.7% and the DAX down -0.45%

Prior to the New York open US consumer confidence numbers will be released. Results better than expected may support traders risk appetite and as such, bring bids to the euro.

EUR/USD support is found at this week's low at 1.4020, a level coinciding with the 20-day moving average. To the upside, resistance levels are 1.4150 and 1.4180, followed by 1.4250.

The EUR/CHF is currently testing the 1.2980 resistance level. A breach here will then target 1.3040, followed by the 200-day moving average that comes in at 1.3080.