Forex Review – Euro erases early gains as caution prevails ahead of second EU Summit

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EURUSD hit a six-week high in early European trading session as sentiment was lifted after the EU Summit over the weekend revealed a broad outline on bank recapitalisation. Also France and Germany were working on an agreement on how to use the European Financial Stability Facility (EFSF) to contain the debt crisis. EURUSD hit a high of 1.3952 but then eased off as the pair was unable to break through key resistance levels and profit-taking ensued, resulting in a drop to 1.3821. A drop in PMI indexes for both Germany and the euro zone also weighed down the euro.

 

GBPUSD peaked at a new six-week high of 1.5999 from 1.5928 Asian lows. Cable took direction for the EURUSD pair today, and mirrored the fall after weak PMI data from Germany, France and eurozone to 1.5916. Investors took the opportunity for profits as they still remain cautious ahead of the second EU Summit on Wednesday. EURGBP fell from an early high of 0.8723 down to 0.8679.

 

USDCHF benefitted from the sell off in EURUSD and after dropping to a session low of 0.8804 bounced sharply to fresh session highs at 0.8874. Overall demand for the safe haven franc eased off today as optimism rose somewhat on EU Summit hopes as well as positive data on China manufacturing PMI. EURCHF rallied to a session high of 1.2306 but was short lived and the cross moved back down to 1.2255 on broad euro sales but the pair held steady from then on.

 

USDJPY hovered close to Friday’s record low, touching 75.97. Demand for safe haven sent the yen higher amid uncertainty on the outcome of the EU Summit on Wednesday and concerns over the euro zone debt crisis. EURJPY fell from an early session high of 106.45 to 105.13.

 

The Canadians dollar remained stronger against its US counterpart hovering close to four-week highs. Risk interests supported by optimism in the aftermath of the weekend EU summit helped lift the loonie, which was supported by rising crude oil prices above $88. This pressured USDCAD down to 1.0048 where the pair hovered above that support level throughout the session.