EUR/USD: 1.3250The dollar sank on Friday following the softer US GDP release that once again raised the hope of the Federal Reserve recommencing its asset purchase programme in the form of QE3. Until then the dollar was doing very little, having largely shrugged off the S+P downgrade of Spain, once the Italian bond auction passed off without too much of a problem, although rates were higher at 5.84% for the 10 Years. Spanish bonds are another matter though and once again they are back above 6%. The Euro initially, having had a swift drop to 1.3156 at the Europe open, on the Spanish downgrade news, recovered during the morning and then gained further strength during the US session, following the GDP data.
Where the Euro heads from here really depends entirely on where the next piece of bad news comes from: whether from Europe or the US, in order to further weaken the respective currency. While the US data is once again looking grim, with the GDP only at 2.2% YY, compared with expectations of 2.5% and following the Q4 2011 reading of 3%, things are really even more dire in Europe. Not only was Spain downgraded, their retail sales declined by 3.7% YY in March (21
stsuccessive fall) on Friday and unemployment reached a staggering 24.45% (50.5% youth unemployment). Now that Barca and Real are both knocked out of the European Cup, things are becoming serious!! There have been further protests over the weekend against the Spanish government’s measures to cut costs in education and healthcare and to increase taxes later in the year.
Looking ahead, we have both the final round of the French election, as well as the Greek election on May 6 so I cannot see the Euro taking off ahead of those results, but the momentum for the Euro does look slightly higher, and given the weight of short positions in the market, it looks as though dips will be well supported. Having said that – Francois Hollande, the French Presidential candidate elect, appears to be on a collision course with Angela Merkel over the EU austerity pact. Although France has already signed up, he has stated his policy of seeking a renegotiation of the deal, while Merkel has said that this is not going to happen. This looks like being an interesting relationship and is likely to help keep a cap on the Euro.
Technically, we have seen the recent highs again, pushing resistance at 1.3270, where the BIS were seen as sellers during the week, before a late drop to close at 1.3255. If we can break up through this area, and daily charts do point very mildly higher, the next resistance will be at the Fibo level which lies at 1.3290, (76.4% of 1.3384/1.2994). This should be strong at first attempt, as it is also the downtrend line from 1.3480. Above 1.3300 though, things become a little messy, but it could be that we get a run towards 1.3380, the 27 March high. We will look at that in greater detail upon approach, if we actually do so.
The downside has minor support at 1.3205 and then at, 1.3170 (rising trendline) ahead of Fridays 1.3156 low. Below here is 1.3131(50% of 1.2994/1.3270), ahead of 1.3096 (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.
All up it looks as though it will be another choppy week. It is also Golden Week, so don’t look to too much from Asia, and it will be Labour Day on May 1, so various centres will be closed.
The key data to watch out for will be the US ISM (Tues), ECB rate decision (Thursday) and US Unemployment/NFP on Friday.
Also to watch out for:
Mon: German Retail Sales, EU CPI, US Personal Consumption/Expenditure.
Tue: China NBS Mfg PMI, US ISM Mfg Index, 3 Fed Governors speaking!
Wed: China HSBC Mfg PMI, German Mfg PMI, Unemployment, EU Mfg PMI, US ADP Employment, Factory Orders
Thur: EU PPI, ECB I/R Decision, Non Mfg ISM. 3 More Fed Governors speaking !!
Fri: China HSBC Services PMI, EU/German Services PMI, EU Retail Sales, US NFP/Unemployment
