EUR/USD: 1.3150
The end of week rally in the Euro was very short lived once the French election result was followed up by the resignations of the Dutch PM and his cabinet, triggering an early election, after an impasse over the Netherlands budget cuts. Sentiment deteriorated further when the German and French PMI data showed a sharp decline in both the Services and Manufacturing sectors. On top of all this, the IMF hinted that any escalation of the EU crisis may require European banks to sell up Eur 3.8 trillion of assets by the end of 2013. Bond prices all blew out again with the spread over German Bunds widening in most EU nations. In equity markets, the DAX lead the way down, sinking 3.38%. The CAC was -2.83% while the S+P finished -0.9%.
It is all beginning to look very dicey again in Europe, but all things considered, the Euro is holding up pretty well. We have been down to test the support at 1.3110 (low 1.3104) and had a mild bounce. Given what is going on, it is astounding that the Euro is not a lot lower and I suspect that the next test of 1.3000 will see a sharp decline, but it appears that we have a fair bit of work before we get there, if indeed we do.
Ahead we have the US Consumer Confidence data today and then the FOMC tomorrow which is likely to provide the next direction for the US$. Later in the week of course we have the important US GDP, with expectations of a 2.5% annualised growth, compared to 3% for Q4 2011, which is one reason why the $ is not stronger than it is. The continuing slow down in the US employment data is not helping and Thursdays Jobless Claims will be keenly watched.
Until then we need to remain fairly neutral on the Euro. The charts are pretty messy and there is no point in trying to read too much into them. A break below today’s low would see a test of 1.3082 (61.8% of 1.2994/1.3226) and then 1.3050 (Head/Shoulder neckline). Beneath here will be plenty of bids between 1.2970/1.3000, but if this gives way there will be a lot of stops to drive it lower. On the topside, it is difficult to get enthusiastic at all. However with the market trading from such a one sided bias, short squeezes are inevitable. 1.3200 and Fridays high, 1.3226 provide the immediate hurdles before 1.3235 (61.8% of 1.3384/1.2994) and the down trend resistance at 1.3258.
For now, remain flexible. The dailies still show no sign of any real move in either direction. The 4 hours point mildly lower, while the shorter term charts are turning very mildly higher after today’s downtrend and subsequent bounce. All very confusing!
