Monday, July 21, 2014

EUR and GBP

The euro gained on the U.S. dollar and the yen held steady in a thinned-holiday Asian trading session overnight. But as tensions rise between Russia and the West, and the violence in the Gaza Strip becomes increasingly bloody, geopolitical events remain the focal point for investors and all asset classes.
The corporate earnings season is underway but even favorable U.S. earnings have been seemingly forgotten. Likewise, the aggressive search for safe haven trading strategies has temporarily fallen since the initial shocks of late last week. Markets and investors are seeking clear guidance from authorities before pursuing any aggressive strategies.
As we head stateside, currency technical levels remain in focus following last Friday’s tests for the EUR and GBP both outright and on the crosses. There has been no sustained breakout just yet, especially for the 18-member single unit, which tested and slightly breached the lower end of the trading range at the ‚¬1.3500 level at the end of last week. For many, with the pair having managed to hold above the pivotal January low of ‚¬1.3477, it will allow for more consolidation before the next onslaught with purpose.
Ongoing geopolitical events should leave the EUR vulnerable; especially ahead of a European Union foreign ministers meet scheduled for tomorrow to discuss sanctions against Russia. Market participants are required to follow both the Treasury and bund yields for clues. Currently, yield differentials are also hinting that the EUR could come under renewed fresh pressure with German 10-year yields probing fresh, historically low levels (bund 10′s +1.16%, U.S. 10′s +2.28%).