USD Loses Ground Overnight As EUR Tests 1.3200 Again Ahead Of London Opening

• US equity markets recover as Dow turns triple digit losses into a flat day
• USD loses ground overnight as EUR tests 1.3200 again ahead of London opening
• USDJPY falls back to lowest level since BOJ last intervened on 31/10/11
• Oil remains under pressure whilst Gold lifts again helped by lower USD overnight
• EURCHF rebounds after trading through 1.2050 yesterday but once again the pairing is moving in a very contained range
• European equity markets open with modest gains following a positive Asian session
• Gold rises again above $1740 in early trade as move helps commodity currencies

Good morning. Well I am more than a little surprised by the price action over the past 36 hours. The EURUSD fell through 1.3100 yesterday afternoon and then traded to touch the low from the previous week at 1.3077, but strangely didn’t trigger stops that I know are underneath that level and clearly there’s still something in front of them.

The EURCHF fell through the 1.2050 barrier yesterday morning trading as low as 1.2040 before lifting slightly overnight, reaching 1.2058 ahead of the European opening this morning- more on this in a minute.

At the same time the USDJPY hit a fresh 3 month low yesterday and has slipped a little more overnight, reaching its lowest level since the BOJ last intervened on 31/10/11.

The stronger Japanese currency is once again rousing the concerns of the BOJ and the government and clearly they have a case with the fundamental economic data showing signs of deterioration once again.

However it seems that the Fed’s pledge to keep interest rates low for an extended period has taken the wind out of the USDJPY’s sails and it’s likely that we may see the BOJ active in the market again soon.

Sometime between now and the coming week the BOJ will release its official reserves for January which is expected to show holdings of the US currency rising from the prior $1295 billion.

Turning back to the EURUSD, as I said, I am a little surprised by the move higher in the EURUSD overnight and it seems to owe more to a generally weaker US currency than anything to do with the EURUSD itself.

Yesterday Portuguese 10 year yields hit a record 16.5% as the Greek PSI talks failed to deliver any kind of agreement.

Weren’t we told on Friday that a deal would be reached by close Monday that would see the private bond holders agree to a coupon rate of 3.5-3.8% instead of the 4% plus previously demanded.

Now the Greek prime minister says’ significant progress is being made and a deal should be reached by the end of the week. So what was all this, ‘we will get a deal by Monday’ talk then?

Well, now that we are told that there might be an agreement by the end of the week, the two parties can’t be any closer than they were last week to any kind of agreement can they?

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At the same time the Germans have almost insisted on financial sovereignty over the Greek government if they are to hand over any more future funding.

Then add to the mix the continual stream of misreporting and unqualified comments and a lack of policy and co- ordination from all the protagonists, both peripheral and non, and you can understand perhaps why after more than 2 years we haven’t actually achieved a whole lot have we? Oh I almost forgot to mention that 25 of the 27 signed up to a fiscal treaty yesterday. I remember those before; remember the Mastrict 3% GDP rule?

The move yesterday in Portuguese bonds should warn us that time is running out here but once again the EU summit came up with a pointless repetition of the same old assurances and statements of solidarity that we have heard 15 times already.

I think it should be dawning on even the die-hardest of EU supporters, that there simply isn’t an answer to 17 countries sharing the same currency which we know only works for one single economy and that cannot be achieved without total union. How far away are we from that ultimate goal? I cannot see that ever as a possibility.

This morning the EURUSD has lifted off the lows from 1.3160 after it earlier failed to break above 1.3200 in overnight trade.

I am still looking at this very closely and given that we flipped 1.32-1.31 yesterday a move back over 1.3200 could warn of further gains to come and might see us test the neckline level once again.

The better than expected German unemployment numbers just released has also helped maintain the current short term demand.

Elsewhere Gold is bid breaking back over $1740. That move has been helped by the positive Asian session. The move in Gold has also helped oil and the commodity currencies trade higher. Whilst risk is on it’s clearly denting the dollar generally and pushing the EUR higher by default.

It is the last day of the month today so we should be live to the prospect of a good many month end fixing orders that may impact the price action today.

EURGBP is continuing to trade sideways.

The same applies to the USDJPY but I can’t imagine the BOJ will be at all happy if the USDJPY trades through 76.00. GBPUSD currently around 1.5765 is approaching key levels at 1.5780-90.

The EURCHF remains in this downward drift as the cat and mouse game continues.