Article by ForexTime

EUR/USD is trading firmer in the 1.3525 area after hitting a new low of 1.3512. Resistance is marked by yesterday’s high at 1.3540 and the 1.3570-75 zone, which encompasses former daily lows. Recent bearish drivers have abated. The shares in Portugal’s Banco Espirito Santo are trading at 42-euro cents, above the 35-cent low seen this week. U.S. versus Bund yield differentials are also steady, with the 10-year at 133 basis points presently, off last week’s cycle wide point at 138 basis points. The wider the interest rate differential the more attractive the greenback.

The Eurozone posted a seasonally adjusted current account surplus of EUR 19.5 billion in May, slightly down from the EUR 21.6 billion in April. The three months moving average continued to improve though, from the trough in March. At the same time direct and portfolio investment amounted to EUR 60.3 billion in May, up from outflows of EUR 105.2 billion in April. Unadjusted data show a surplus of EUR 8.9 billion in May and an accumulated surplus of EUR 229.5 billion in the first five months of the year, up from EUR 189.1 billion in the corresponding period last year. Accumulated direct and portfolio investment inflows meanwhile dropped to EUR 40.8 billion from EUR 75.6 billion in the first five months of 2013. Still, data continues to support the EUR, and it remains to be seen if the ECB’s latest monetary stimulus will make a significant difference, once the TLTRO program starts in September.

On Friday, the IMF’s Lagarde said the ECB has acted within its mandate and while it has done “a bit less” than other central banks, the ECB’s willingness to act against deflation is “good”. Lagarde also stressed, however, that monetary policy could not resolve all problems. Turning to the U.S. Lagarde said the FED acknowledges the impact of its policy on the rest of the world, adding that the U.S. has “exorbitant privilege” with the dollar.

The EUR/USD continues to trade at the bottom end of the current range and is poised to test the post ECB lows near 1.3503.  Momentum has turned negative on the currency pair as the MACD (moving average convergence divergence) index generated a sell signal.  This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread.  The index moved from positive to negative territory confirming the sell signal.

Article by ForexTime

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