The euro weakened broadly overnight on no apparent reason. Some attributed the selloff in the EUR/USD to the solid US housing data. But, it should be noted that the dollar was not broad based. And, the decline in the EUR/USD indeed happened before the data release. Broad based weakness was indeed seen in the euro, except against the Aussie. Thus, US data shouldn't be much of a factor. Instead, we believe that traders are starting to position themselves ahead of next week's ECB meeting as there have been continuous speculation that the central bank would eventually act to boost inflation, which stands far below the 2% target. ECB's Draghi has already noted that the latest projections to be released next week would provide 'a very significant change' in the central bank's analysis. In our special report euro's Recent Strength Unsustainable, it was also argued that euro's recent strength was mainly due to temporary factors due to yield and capital flow. But the trend could turn as those short-term catalysts dissipate.
Technically, the EUR/USD dips below a near term rising channel overnight which indicates at least some more pull back in the near term. The EUR/GBP broke 0.8214 support which dampened the case for bullish reversal and turns focus back to 0.8164 key support zone. The EUR/CHF continues to press 1.2182 low. The EUR/JPY also struggled to extend upside momentum above 140 level. Even against the Aussie in the EUR/AUD, the cross is kept below 1.5386 temporary top despite yesterday's recovery. We'll watch out for further euro weakness before the week closes and during the early part of next week.
Another development to note what the fall in long term US treasury yields this week. 30 year yields dropped for another day to close at 3.635%, comparing to last week's high of 3.744%. Same was saw in 10 year yield, which closed at 2.673% comparing to last week's high of 2.781%. The technical picture in both the TYX and TNX looked similar as both were rejected off the 55 day EMA as recent recovery failed to gain momentum. We'd possibly seen both the TYX and TNX extends lower to recent support at 3.539% and 2.579% soon respectively. And that could also drag yen crosses, in particular USD/JPY lower.
On the data front, New Zealand Trade surplus came in wider than expected at NZD 306m in January. Swiss GDP, employment, German import price, unemployment, CPI, eurozone M3, confidence indicators will be released in european session. US will release durable goods and jobless claims today.