EUR/USD: 1.3365
Having spent almost the entire Q1 in the 1.3000/1.3400 range, there is not an awful lot to suggest that we are likely to see much change in coming week. A look at 1.35, and possibly at the 200 DMA at 1.3585 may be on the cards, but not much more right now. Further out though, the chance of a move to 1.3625 should not be ruled out (see Usd/Chf).
Friday saw the Euro rally after the Spanish budget cuts of 27 bio suggested that the government does intend to stick by the proposed austerity plans, although most economists appear to think that this is not austere enough, having fallen short of the Eur 35 bio cuts that were being proposed last week. With the current rates of unemployment in the likes of Spain, Portugal and Greece though, the measures cut a fine line between reigning in costs and future economic growth. Elsewhere, the EU Finance Ministers meeting, as expected, increased the size of the proposed “firewall” bailout fund to Eur 800 bio and did no harm to the Euro's strength on Friday.
On the other side of the Atlantic, increased US consumer confidence capped the Euro’s rise on Friday, but otherwise did little to drive activity in the dollar. European equities rallied on the more positive sentiment, while the US indices took the US data as another sign that the US is recovering, albeit very slowly and that investors are more prepared to invest in risk assets. The DAX & CAC40 finished up 1% & 1.25% respectively while the S+P finished at 1408.50, up 0.4%
The action in the week ahead will start from the word go in Sydney on Monday following the release of China’s March NBS manufacturing PMI, with the number coming in at 53.1, the highest reading in 11 months ( 50.5 expected), and is likely to give the Euro an early session boost. Although this diminishes concerns of an immediate slowdown, there are still worries of an economic contraction ahead as demand slows.
Technically there is little to add from previous sessions. For the time being, last week’s highs of 1.3375 again provide a short term cap, which looks likely to come under pressure following the China data. Above here a clean break of 1.3390 is required to provoke a move towards 1.3420 and possibly 1.3485, which remains a formidable cap, ahead of the 200DMA. at 1.3586. Further out keep 1.3625 in mind as a possible target.
On the downside a return to 1.3285 would see bids, with a break leading towards last week’s dip to 1.3250. Below this would see 1.3150 and more choppy range trading. The 4 hour and daily charts for the Euro are showing little hint of any major directional move, so we still need to take it session by session and remain flexible.
Keep a close eye on the DXY. Currently at 79.00, the indicators are suggesting that the US$ has some weakness ahead of it over the next few days, which may put a continued bid under the Euro for a session or two.
The coming week is loaded with pre Easter data, which in a thinning market could add to volatility - not the least of which is the US Non Farm Payroll/US Unemployment data due out on Good Friday (exp +250K). Be very square before then! Following yesterdays China data, a good NFP number would see a return in demand of risk associated assets post Easter. Otherwise more range trading looks likely, but it could get thin and wild for a couple of sessions as we approach the holiday.
Before then we see a lot of data from both Europe and the US. Highlights will include PMI data from Manufacturing, Services and Construction sectors from much of Europe as well as the US ISM. The ECB have their rate decision on Wednesday and the BOE on Thursday. Lots of scope for volatility, but I would be well on the sidelines before Easter. Have a good week.
