DAILY FOREX:
EUR USD (1.4925) To see the euro correcting from a peak just shy of
$1.50 was, for short-term traders, nothing less than poetic. After three
weeks of almost uninterrupted strength it was overdue for a correction,
some suggested. But even these actors didn’t seem to be expecting
too much to the downside. They were right; the excursion below $1.49
was only a matter of minutes. Medium-term traders seem to see a
similar picture – albeit on a grander scale. Contrary to popular political
thinking in Europe at the moment, the BGA, the German exporters’
association, was quite upbeat about the export outlook despite the
strong euro. However, the association’s members are not expecting
any lasting uptrend. They believe that the level $1.60 might be tested
in coming months, but they are convinced the single-currency will
ultimately settle into a range between $1.45 and $1.55. The choice of
borders for this future range owes nothing to chance. The lower
boundary is precisely the level that most of them would have seen as
an upper border six months ago. Those expectations were dashed in
September and corporates had to scramble to re-adjust their hedges
to include a test of $1.50 or, as we see, possibly even more. But the
convenience of predicted medium-term range is that it allows them to
believe that the $1.45 can be seen again and that they would be
justified in buying there.
We maintain a bullish outlook for the euro and adhere to our near-term
objective at 1.5125. The downside risk-limit remains at 1.4855.