Tuesday, 10 May 2011

Late Day Rally in Equities Brings Euro off its Lows

A rally in equities and a rebound in risk appetite helped boost the euro to the 1.4400 level as the 17-nation currency came off its lows from yesterday.

In late day trading the S&P 500 rose 0.90% on merger news while commodities were also boosted with spot crude oil rising 2.5%. The surge in equities helped to pull up higher yielding currencies such as the euro which is up across the board along with the Aussie dollar.

The EUR/USD rallied to a high of 1.4411 to trade back at 1.4400. The EUR/CHF is up at 1.2687 and traded back to 1.2680 after less than forecasted Swiss CPI. The Aussie dollar rose to a high of 1.0848 and looks to close on its daily high. The pound moved as low as 1.6315 and now trades at 1.6357.

The remainder of the week may be data driven leading up to Thursday and Friday's US inflationary data. Beginning tomorrow the BOE Inflation Report will be delivered and higher than expected inflationary pressures would be a catalyst for the Sterling. Resistance is found at 1.4640 with support at 1.6290 off a trend line from the March low.

US and Canadian trade balances will also be released tomorrow along with weekly crude oil inventories. Strong US data should feed into USD selling. Despite last week's collapse in the euro rate along with commodities, equities have been constructive. Should further gains be booked in global bourses and barring any debt restructuring in Europe, the euro and crude oil may build on today's rally.