The euro took the upper hand against most major currencies on Tuesday morning in Europe but caution ahead of Federal Reserve Chairman Ben Bernanke's testimony capped its gains to some extent.
Amid weakness in Europe and a sluggish recovery in the U.S. economy, investors are pinning hopes that Bernanke would hint at further stimulus for the American economy when he addresses Congress later in the global day and tomorrow.
An unexpected drop in U.S. retail sales and the downgrade of IMF's global growth outlook to 3.5 percent from its April forecast of 3.6 percent also stoked expectations of more monetary stimulus from central banks around the world led by China and the United States.
China plan to double its second half railway infrastructure investment to nearly 450 billion yuan from 150 billion yuan in the first half added speculation that the red dragon would provide some massive stimulus in the days to come.
Though Bernanke's testimony is seen as a catalyst for trading this week, analysts at Westpac do not expect the Fed Chairman to unveil a policy shift so soon after delivering an extension of Operation Twist recently.
Citigroup's better-than-expected second-quarter results and easing of Spain's borrowing costs at the first debt auction since the government announced a EUR 65 billion austerity package last week outweighed the news of the Italian bank downgrades by Moody's Investors Service.
In economic news, a measure of German investor sentiment declined for the third month in a row in July to minus 19.6 points from minus 16.9 in June, results of the ZEW Indicator of Economic Sentiment survey revealed. That was slightly better than economists' forecast for a score of minus 20.
Bouncing back from yesterday's fresh multi-year low of 0.7834 against the pound, the euro gained more than 40-pips to hit a 4-day high of 0.7878 around 5:10 am ET. The pair shed a few pips shortly thereafter and leveled off around the 0.7860/65 area. Key level to watch on the upside is 0.7915 and 0.7835 on the downside.
The pound ticked lower after a report showed that the U.K. annual inflation eased unexpectedly in June to reach the lowest level since November 2009.
Consumer price inflation fell to 2.4 percent in June from 2.8 percent in May, remaining above the central bank's 2 percent target. Month-on-month, the consumer price index fell 0.4 percent in June following a 0.1 percent drop in the previous month.
The common currency also climbed to a 5-day high of 97.40 against the yen around 5:10 am ET. The pair erased some of its gains shortly thereafter and reached a low of 97.11 after an hour. The probable resistance level for the euro-yen pair is seen at 97.85 and the likely support is visible around the 96.20 area.
Japan's Finance Minister Jun Azumi said that speculative moves are pushing up yen and the currency gains do not reflect the country's economic fundamentals. He said the government is closely watching the developments. Rapid appreciation of yen could hurt the economy and therefore, the Ministry will take decisive measures, if needed, he added.
The single currency also outperformed against the US dollar Tuesday, hitting a weekly high of 1.2317 around 5:10 am ET. The euro-buck pair thus recovered from last week's key support zone around the 1.2160/70 level, with 1.2340 seen as the next probable resistance level.
The euro was unable to breach its tight recent ranges against the Swiss franc today, trading between 1.2014 and 1.2011.
Looking ahead, the U.S. CPI and industrial production for June, NAHB housing market index for July and the Treasury Department's report on the flows of financial instruments into and out of the U.S. for May are expected to influence the market ahead of Bernanke's testimony in the New York morning session.
by RTT Staff Writer
For comments and feedback: email@example.com