EUR/USD: 1.3123The US$ strengthened markedly after the Non Farm Payroll data on Friday (assisted by the strong upward revision in January) for its biggest one day rally in a couple of months. The Euro ignored the positives of the debt swap deal being completed, sinking back to the week’s lows. The weekend UK Press are already suggesting that this bailout is only delaying the inevitability of the next one being required. The ISDA announcement that the Greek swap deal does indeed constitute a default, dented sentiment and will trigger the need for insurers to payout on Credit Default Swap insurance. Fridays move appears to be a subtle change of stance and one wonders if it is possibly the start of a new dollar uptrend? For the last year or two, a NFP reading such as Friday’s and the result of the Greek deal would have seen a rise in risk sentiment. This would have meant a stronger Euro (and commodity bloc) and a weaker US Dollar as investors moved away from US Treasuries.. This was not so on Friday as the market headed for the perceived safe haven of the US$.
So the Euro has lost all the weeks’ hard fought gains, but overall it remains within the middle of its recent range. How long for is a matter for conjecture. Not very, judging by the indicators on the charts. The support at 1.3095 (7 Mar low) and 1.3053 (50 % of 1.2623/1.3485) need respecting, and indeed the Euro tested the first of these by trading own to 1.3096 on Friday,. Below here a retest of the previous 1.2973 would not surprise before 1.2623, (16 Jan low). The daily indicators continue to point to lower levels and the 4 hour charts, which on Friday morning were suggesting the possibility of a test of 1.3300, turned around sharply during the session and now also look as though they want to head lower.
A word of warning though; The DXY ($ Index), which although it closed on its highs at 80.00 is not showing any signs of follow-through strength, as far as the oscillators are concerned. Given that the Euro makes up 58.6% of the Index, I think we should use it as a hint not to expect a runaway train to the downside.
To the topside, we need to see a break back above Friday’s 1.3290 high to ensure that the immediate downside pressure has diminished for a return to more range trading. That looks unlikely in the coming session, but not to be ruled out during the week.
Data wise, the week ahead will be highlighted by the FOMC on Tuesday. Expectations of any mention of QE are small to non-existent, which could add further fuel to the US$ and may bring equities a little lower. In Europe we have the EU Finance Ministers meeting on Monday and the ZEW Economic Sentiment survey on Tuesday and EU unemployment on Thursday.
