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Tuesday, May 01, 2007

Euro Outlook (30th April 2007)

Into the new week and EUR/USD was on the defensive after the Euro opened the week at far lower levels and many EUR crosses gapped lower. Asian trading saw spot sold back from 1.3653 to just shy of the 1.36 level. Stops below the figure were being eyed by bears as were downside stops in EUR/JPY, below 162.40.

Sell-stops in the 90's were removed but an Asian central bank emerged on the bid into 1.3590 to prop the pair and with the EUR/JPY stops intact the price soon began to consolidate.

1.3585 was seen as the key level below, with more stops sub-1.3580 but the failure to break lower combined with the "as-expected" Euro Zone inflation data helped force a slight bounce. Looking ahead, EZ M3 hit a 24-year high to support the view that higher rates remain in the pipeline from the ECB but the all-time highs at 1.3683 look a little away from the market with 1.3620 offers currently capping.

Option dealers note large 1.36 strikes set to mature both today and tomorrow while the short-run will see the focus turn to the core PCE deflator and the 12:30 GMT release of US March income & spending data.

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