Weekly Forex Forecast: EUR Bulls Pushing the Single Currency

on Dec 3, 2012


The euro currency rose to a six-week high against the dollar today as an index measuring Chinese manufacturing activity showed improvement, shifting demand away from the US currency as a safe-haven asset.
At 10.30 GMT the EUR/USD pairing was trading at 1.3031/32 or 0.37 percent higher than the previous session.
“There is positive risk appetite after the Chinese data over the weekend,” said Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen. “The dollar is on the defensive and there is little in the Eurozone to cause concern in the short term.”

According to Lee Hardman, Forex analyst at the Bank of Tokyo Mitsubishi, the euro currency is receiving support from investors’ improved confidence in the Eurozone. Over the weekend German Chancellor Angela Merkel suggested she would consider accepting losses on Greek bonds but pointed out this shouldn’t happen until 2014-2015 and conditional on Greece staying on track with the adjustment programme targets.

The manufacturing sector in the Eurozone saw a slight improvement in November with the PMI posted at 46.2 up from 45.4 in October. German PMI also improved to 46.8 against 46 in the previous month. The only exception was the Italian PMI at 45.1 in November down from October’s 45.5.
Technical analysis by FXstreet.com suggests that if the EUR/USD breaks through 23 October high at 1.3075 it will meet resistance at 1.3084 and 1.3129. On the downside the pair will find support at 1.2968, 1.2939 and 1.2917.

The pound fell against the euro briefly reaching its lowest level in more than a month as actions by European policymakers to solve the debt crisis have awakened the euro bulls.
!m[GBP Weakness due to Underlying Fundamentals, Yen Most Shorted from the Major Currencies](/uploads/story/949/thumbs/pic1_inline.png)At 12.40 GMT the EUR/GBP was trading at 0.8120/22 or 0.21 percent higher after reaching a session peak of 0.8134. According to Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank, the British pound’s decline against the euro is “a function of improving short-term European sentiment over Greece,”

Analysts expect further drops in the sterling, which has been used as a safe-haven asset against the trouble in the Eurozone. With the buyers turning to riskier assets, the sterling’s underlying fundamentals, which are not very positive, will be exposed. Forecasts are that a report issued next week will show manufacturing to have contracted for the seventh consecutive month in November. Furthermore a Bloomberg News Survey of economists predicts that Bank of England policymakers will leave their asset-purchasing programme unchanged at £375 billion when they meet on 5-6 December.
According to the FXstreet.com, the EUR/GBP is expected to see resistance at Friday’s and recent session highs of 0.8132 followed by 0.8141/9 and 0.8165. If bearish, the pair will see support at 0.8114 followed by 0.81 and 0.8075.
At 13.05 GMT the USD/JPY was changing in negative territory at 82.23/24 despite the incoming Japanese elections and the Bank of Japan meeting later in December.
The Financial Times reported today that short positions on the yen have reached a five-year high, according to figures from the US Commodity Futures Trading Commission.
“I think everyone is getting increasingly excited that this could be “it”. The market has been waiting for “the big yen sell-off” for years,” said Philippe Bonnefoy, chairman and chief investment officer of Newscape Capital Group.
The Japanese currency has overtaken the euro as the most popular currency to short with a total of 79,466 contracts betting the yen will fall. Estimates made by Nomura show that if the new Bank of Japan raises the inflation target to 2 percent and keeps interest rates low in the process the dollar-yen pair will move to levels above 95.00.


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