Monday 10 October
Euro 1.3350
The improved Non Farm Payroll Data allowed the Euro to reach Fridays 1.3520 target beautifully before it reversed sharply to 1.3360 when Fitch downgraded Italy and Spain, before stabilising just under1.34 going into the weekend.
Monday is the Columbus Day holiday in the US, as well as a Public holiday in Japan, so European issues will continue to dominate thoughts early in the week. Merkel and Sarkozy have been meeting in Berlin over the weekend to discuss the EU banking crisis and how to deal with the recapitalization programme to shore up the banks. It appears they have reached an agreement of some sort but won’t make an announcement until towards the end of the month when the details have been finalised. Whatever happens, expect a Greece default is more or less priced in by the market
Technically the shorter term indicators are somewhat mixed and it would appear that we may be in for some choppy range trading early in the week. As the dailies unwind their recent oversold conditions, they continue to look generally supportive of the euro early in the week. In the nearer term the hourly and 4 hourly oscillators are giving somewhat conflicting indications and so I suspect Monday may well see a range of something like 1.3360/1.3460 – at least before Europe opens. Any unexpected announcements though will quickly alter the picture.
Further out the picture seems to depend on which way we want to move from the weeks closing levels just beneath 1.3410; 50% of the move commencing in June 2010 from 1.1870/1.4940. Using this as a guide, the next major support/resistance levels would be 1.3045/1.3755. A test of either of these would be entirely possible, but given the oversold nature of the dailies my initial tendency would be towards buying the dips, without looking for too much in a directional nature. Giving added impetus to this is the DXY which appears to be turning lower, indicating some dollar weakness ahead. Having made a high last week at 79.60, we finished at 78.70 and a move towards support at 78.00 would not surprise (See DXY comment p 8).
Next week’s data highlights will include the FOMC Minutes (Tues), ECB Monthly Report (Thur), China & EU CPI (Fri), US Retail Sales (Fri). Good Luck
