EUR/USD: 1.3237On a day of little news, the Euro did more or less as we hoped – a quiet start followed by a rise towards the 1.3290 level. The high has so far actually been 1.3265 and seems to have been driven more by shorts being stopped out on a break above 1.3200 than anything else. It could be that this will be the main driver for the rest of the week given the paucity of data due out in coming sessions. Apart from some housing data in the US and the EU PMIs on Thursday there is little to go on, and in the absence of any disasters from Europe, perhaps no news is good news as far as the Euro is concerned. It should be noted though that Mohamed El-Erian, chief executive of Pimco (the world’s largest bund fund) said that he expects Portugal to be the “next Greece”, so European debt issues are going to remain firmly in focus.
Technically, the Euro has played the game more or less perfectly for 24 hours. From here it gets a little more tricky. The 4 hourly charts still have some upside momentum and a squeeze to the 1.3290 level would not surprise. The hourly charts though are becoming overbought and showing some mild divergence. I suspect then that as far as Asia is concerned, further consolidation will be the play of the day within a 1.3200/60 band before the possibility of a run higher later on. Should we see 1.3290, and take it out, the Euro would then be likely to target 1.3370 (76.4% of 1.3485/1.3002) and possibly 1.3485 itself. I still think that this is the less preferable view though, and more likely is an eventual resumption of the Eur downtrend. We need a return to levels below 1.3048 (Fridays low), to enhance the case for further losses. If/when we do go below here, expect the Euro to target 1.3002 (Thursday low) and then to 1.2970 (16 Feb low).
Today the German PPI will be worth watching and from the US building permits and housing starts. That’s about it
