EUR/USD (1,4105): Yes, with capital flows into Europe combined with some concern about the US debt.

Let’s take the last one first. We are many who have raised the US debt concern several times and it will be a long term burden for the greenback. Though the latest USD sell offs on that account seems more speculative than fundamental. On the other side of the Atlantic, in Europe, are we trying to save everything with state debt (lending plus serious large off balance sheet positions) so the debt concern will mid term swing back hitting the Euro.

The capital flows are more fundamental, as what I have seen origin from Japanese investors to a large extend. We don’t like to hear it here in Europe, but Japanese investors have growing risk appetite. They enter the risk currencies again, like NZD, AUD, some Scandies and then the Euro….. It looks like the USD is suffering, relative yes, but it’s more the EUR that is bought. That’s why I look at these flows because it feels fundamental.

The debt concern regarding US will become a true bearish factor in about 6 months. Like earlier, I continue to argue, that the preconditions the US administration uses to calculate the expected debt are way too optimistic (please read weekly’s from Q1) – it will be much worse than expected.

The short tem sentiment for USD is bearish with 1,4500 in sight, though I expect it to be a short term top with a move back to 1,4000. When I suggested the long position around 1,3300 for about 2 months ago (it was very unfortunate stopped out just below 1,3000), I suggested a turnaround at 1,4000. With the current sentiment I would of course not look for a short EUR/USD recommendation right now.

Next week I look at the US unemployment data on Friday as the very important number (exp. 9,2% and -530k). Other economic data needs to be good to help the Dollar, slightly weak numbers will hurt USD.

Target: 1,4500 followed by move to 1,4000.

EUR/GBP (0,8770) – GBP/USD (1,6100): Fair that the beaten Sterling recovers as we have signs of global stability, but since early March all financial markets have been dominated by uncritical bargain hunting. GBP has profited from this attitude because it was sold so much down. I respect the sentiment but I wouldn’t be all too bullish on Sterling.

The UK government complains about Bank of England is too pessimistic, but realistic in my view. Funny to follow that debate, but I lean more to BoE as we the economy is in unknown territory. I agree that the housing market show signs of improvement but many private households are in hopeless debt situations. The commercial property market will drop even more, so more problems are ahead.

Just a few less important economic data next week. In respect of the GBP bargain hunters, Sterling will be supported.

Targets: EUR/GBP range 0,8500 – 0,9000 GBP/USD range 1,5800 – 1,6300

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