Euro Streak Ends ?

The euro has advanced for ten consecutive sessions coming into today.  Yesterday's failure to establish a foothold above $1.49 appears to have triggred a bout of profit-taking and the euro has retreated to yesterday's lows. 

Profit-taking is also being seen in the dollar bloc.  The Reserve Bank of Australia left rates on hold for the sixth month and its statement was slightly tweaked suggesting a little more inflation altertness, but not enough to prevent the Australian dollar from testing a 4-day low near $1.0850.  Soft wage data in New Zealand is helping ush out expectations of a rate hike.  A majority victory for the Canadian Conservatives has not protected the Loonie from the US dollar's recovery. 

Sterling is the big mover though.  A softer than expected manufacturing PMI, which at 54.6 stands at a 7 month low has triggered sharp drop in UK rates as BOE rate hikes seem also less likely.  

Euro support is now seen near $1.4750 and a break signals a move toward $1.4650 and then $1.4500.  Given that what I have aruged is the main driver, the divergent trajctory of monetary policy and that the US-German 2-year spread is making new widening the odds seem to be against this being a major euro top.  Moreover, we know the ECB is hawkish and most likely will raise rates in July (though June cannot yet be ruled out entirely) and today the three-month dollar LIBOR is at its lowest level since March 2010 (0.272%). 

Watch sterling.  Support now in the $1.6430-50 area.  That said a break of $1.6400 could signal another two cent move.  Alternatively, and what I expect to happen is that the $1.6400 area holds and sterling recovers back toward $1.66 before running out of steam and carving out a more serious topping pattern. 

Dollar support against the yen is near JPY8070.  A break there could see a bit more slippage but I think the downside is limited as the market will be reluctant to take out the JPY80 level for fear of intervention.