• Euro reverses course in early weekly trade
• Softer round of Eurozone PMIs weigh heavily on risk appetite
• Global equities also trade with heavy tone
• US Dollar and Japanese Yen prime beneficiaries
• Eurozone sovereign debt highest since Euro established

Currencies were under pressure for the entire European session, with the safe haven US Dollar and Japanese Yen benefitting from the risk off trade. The pullback in the Euro has been quite aggressive following Friday’s bullish close, and a break and close below 1.3125 on Monday, will likely accelerate declines. This broad risk liquidation also weighed on other correlated markets, with equities taking a big hit and positioned for a bigger decline into North American trade.

Relative performance versus the USD Monday (as of 10:50GMT)

JPY +0.52%

GBP -0.20%

CAD -0.46%

EUR -0.62%

CHF -0.63%

AUD -0.82%

NZD -0.86%

The primary driver for the risk off price action stemmed from a series of much softer European PMIs, highlighted by the French and German showings. There was some talk midway through the European session that the ECB was checking Spanish rates, and this supposedly helped to prevent an acceleration of declines in the single currency. Looking ahead, the North American economic calendar is extremely light, and the market is expected to trade off of broader global macro themes.

ECONOMIC CALENDAR

TECHNICAL OUTLOOK

EUR/USD: The latest round of setbacks have stalled ahead of some key multi-week support by 1.3000 and from here we still can not rule out risks for additional consolidation above 1.3000, before considering bearish resumption. Friday’s close above 1.3215 opens the door for additional gains over the coming sessions but ultimately, any rallies towards 1.3400 should be well capped. A break and daily close back under 1.3000 is now required to put pressure back on downside and accelerate declines to the early 2012 lows at 1.2660. Anything in between is still classified as choppy intraday trade.

USD/JPY: The latest pullback from the 2012, 84.20 highs was viewed as corrective and it looks as though the market has finally found some solid support ahead of 80.00. The setbacks have stalled by the top of the daily and weekly Ichimoku clouds and we look for the formation of a fresh medium-term higher low somewhere around 80.00 ahead of the next major upside extension back towards and eventually through 84.20. Overall, this is a market that has undergone a major structural shift in recent months and we now see the pair in the early stages of a longer-term up-trend. Ultimately, only a weekly close back under 78.00 would negate. Any dips towards 80.00 should therefore be used as formidable buy opportunities.

GBP/USD: The recent break back above 1.6000 now opens the door for fresh upside towards the October 2011 peak at 1.6165. However, any additional gains beyond 1.6165 should prove hard to come by, and we once again see risks for a bearish reversal in favor of renewed weakness back down towards key support by 1.5800. A break and close below 1.5800 will then accelerate declines. Ultimately, only a weekly close above 1.6165 would negate underlying bearish bias.

USD/CHF: Our core constructive outlook remains well intact, with the latest setbacks very well supported by psychological barriers at 0.9000. It now seems as though the market could be looking to carve a fresh higher low, and we will be watching for additional upside back towards the recent range highs at 0.9335 over the coming sessions. Above 0.9335 should accelerate gains towards the 2012 highs by 0.9600 further up. Ultimately, only back under 0.9000 delays and gives reason for pause.

--- Written by Joel Kruger, Technical Currency Strategist