EUR/USD: 1.3020
The Euro and the Dollar are fighting it out to see which is fundamentally the weaker and it is quite a battle. First up, on Friday, the weak Services PMI out of Europe kept the pressure on the downside for the Euro. Then the poor NFP data (+115K against exp +165K) sent the US$ sharply lower towards 1.3180, where good offers at the previous resistance saw the Euro collapse again to finish on its weeks lows at 1.3080. Overall the choppy conditions are taking us nowhere fast and the market is growing weary of the continuing 1.30-1.34 range. Traders on the whole though , were pretty wary on Friday of the Euro, ahead of the weekend election results where Francois Hollande, the socialist contender has just been declared the winner over Sarkozy, and which is unlikely to help the French relationship with Germany. The Greeks have also been voting in their own election which appears to be headed towards having no clear winner and could spell for great political instability in the EU. Internal Greek wrangling ensures that no progress on the debt crisis is forthcoming and his could well end up in wounding the existing EU fiscal accord, at best, and possibly in a full default at some stage in the future, with Greece being forced to pull out of the Euro.. Watch this space!
The equity markets didn't have a good day after the US data release and risk was heavily sold off. The coming week will be in for a fairly nervous start and European bond markets could have another tough week ahead of them.
Technically we have closed at the week’s lows, but have yet to see the April 18 base of 1.3056. A break would take us down to the white support line (chart) at 1.3000. This should be strong first time around and good bids should eventuate down to 1.2970. Below her it would be a different picture and heavy stops lie at 1.2960 and below. Much will depend on statements from Europe following the weekend elections. Early Asia trading on Monday will be closely watching for any statements from Francois Hollande today. Longer term downside targets are to be found at 1.2925 (25 Jan low)and 1.2868 (20 Jan low). Beneath his will accelerate towards 1.2623 (13 Jan low). The election results could be the catalyst for a breakout in the Euro from the recent range, and early Monday price action sees the Euro at 1.3015.
The topside could see a squeeze back towards the 1.3280 area. Interim resistance is at 1.3100, 1.3180 1.3250 and 1.3265. Don't discount this altogether. The market is still short of Euros. If the EU politicians can contain the collateral damage by not making stupid and contradictory statements following the elections and if the US Data continues to give little reason to be long US$, we could yet see a nasty squeeze higher.
Mon : EU Investor Confidence, German Factory Orders
Tue: German I/P, 2 Fed Governors speaking
Wed: German trade Balance, US wholesale inventories
Thur: ECB Monthly Report, US Jobless claims, Bernanke.
Fri: China CPI, German CPI, US PPI, R/M Sentiment Index.
