The euro may decline to 88.50 British pence should the 16-nation currency close below so-called support at 89.50 pence, according to BNP Paribas SA, citing trading patterns. Support for the euro at 89.50 pence represents a horizontal trend line that connects the lows of March 9 and April 10. "The euro-sterling is meeting support at 89.50, now seen as a key level on the downside," Claude Mattern, a Paris-based technical analyst at BNP Paribas, wrote in a research note today. "A clear break would argue for a bearish bias." "A closing price below 89.50 would open the way for further downside pressure," Mattern wrote, citing daily momentum indicators. The EUR/GBP is trading at 0.8940 as of 9:30am, London Time.
The yen rose against the euro on speculation a report this week will show China's economy cooled to the slowest in almost a decade. The euro halted two days of gains versus the dollar on concern a German report tomorrow will show wholesale prices fell an eighth month, supporting the case for the region's central bank to cut interest rates. "There doesn't seem to be much improvement in the real economies" around the world, said Toshihiko Sakai, head of trading for foreign exchange at Mitsubishi UFJ Trust & Banking Corp. "The yen is likely to be bought and the dollar also may be bought as a 'safe-haven' currency.'' Europe's single currency also weakened on concern European Central Bank officials this week will signal they may keep lowering rates to support growth. Council member Axel Weber will speak in Hamburg tomorrow and Erkki Liikanen will deliver a speech in Helsinki the following day. ECB President Jean-Claude Trichet said last week the central bank is studying unorthodox ways of boosting the economy. The EUR/USD is currently trading at $1.3270 as of 9:45am, London Time.
Currency pairs such as the Australian and New Zealand dollars against the yen have shown a high positive correlation with U.S share markets in recent months, and analysts say that is partly behind the yen's fall. The U.S financial markets had made an upbeat return to business on Monday after the long weekend, driving the dollar and yen down and sending the euro and the Australian and New Zealand dollars up. Still, analysts caution the improvement in investor confidence is simply a reduction in the extreme pessimism seen at the height of the global economic crisis and sentiment remains fragile. The AUD/USD is currently trading at 0.7270 as of 10:10am, London Time.
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