The single currency has been well-supported above 1.42 since the beginning of the week as the market is waiting for the ECB's decision to raise the interest rate by .25% to 1.25% to be the first tightening action after the credit crisis for containing the inflation upside risks after it had reached 2.6% y/y in a preliminary reading of March from 2.4% y/y in February and these are well above the ECB target which is 2% yearly.

The Single currency could rebound from 1.4059 after the release of March labor report which has shown declining of the unemployment rate to 8.8% from 8.9% in February and rising of March US non-farm Payrolls to 216k while the market was waiting for just 190k after 192k in the preliminary release of Feb which has been revised up too to 194k supporting the greenback in the beginning but it has eased back under the pressure of the market risk apatite which has increased further by the release of US ISM manufacturing index which has come at 61.2 which the market waiting for just 60.5 from 61.4 showing no easing of the demand in the sector a  because of these data helping the single to close above 1.42 but it could not break above 1.4281 reaching just 1.4267 in the beginning of this week before easing back to be traded just above 1.42 until now as it is still capped by the market worries about the debt outlook in Europe after last month Moody's downgrading of the Greek sovereign debt 3 notches to B1 and Spain's long term debt to Aa2 which have been followed by another downgrading of the Portuguese long term debt 2 notches to A3 and it has been concluded after that to have another downgrading to it from S&P to BBB from A- and also Fitch exposing it to be revised down in the case of not asking a share of the offered bailing out plan which has been extended recently from 250B Euros to 440B Euros and it looks that it is depending now on the new government in Portugal to take this decision which can put pressure on it to take further austerity measures for capping its budget deficit to be the second country to take a share of this offering package after Ireland which added worries to the market by its yearly GDP which shrank in 2011 by .7% while the market was waiting for rising by 1.2% after shrinking by .3% yearly in the third quarter of last year but it looks that the governmental spending cuts and the worries about the countries budget deficit have taken it toll on Irish GDP which was doing double digits rates of growth yearly in the 1990s.

So, The single currency movement was contained recently by the market waiting for the ECB to hike the interest rate for containing the prices which can underpin the single currency and in the same time the negative effect of  this tightening action which can also put more weights on the debt ailing countries in the Euro area as it should increase the cost of repaying their debts driving up the yields of their new issuance too which can weakening their creditability further weighing negatively on the Euro and its backed securities which were getting support from the ECB adopted easing stance which fueled the prices and helped to stimulate the Economy in the same time.

By God's will, the next resistance of this pair is still expecting to be at 1.4281 which has been reached in the beginning of last November after the Fed's decision to add another 600b$ to its quantitive easing policy to be the recorded high of this pair since the credit crisis ending until now and the pair repeated inability to come over it can expose the Euro to lose technical  momentum again of its way up getting back to 1.4017 which can be followed by 1.3855 and the breaking of it can lead to 1.3751 again while the main supporting level of the pair is existing at the formed bottom of the recent ascending to 1.4247 at 1.3428 while the failing of 1.4281 can trigger stop loses orders and further buying momentum to be gained.

 

Kind Regards

FX Market Strategist

Walid Salah El Din

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