EUR/USD: 1.3055
The Euro has stabilised after the early Asian selloff following the weekend election results, as it recovered from its 1.2954 low. Some positive noises from France and Germany about the “close cooperation” that they intend to pursue has helped the situation and Francois Hollande will be in Berlin in the next couple of weeks to meet Merkel, so we won’t have to wait long to find out how “close” any cooperation will be. Judging from statements from both him and from Merkel, it will be a pretty problematic relationship. We shall have to wait and see on that one, but one would assume that they will want to avoid too much collateral damage which would result in a meltdown in the Euro and Equity markets. Merkel has already repeated though that the fiscal pact is not up for renegotiation.
More of an immediate issue is Greece, where another election looks to be on the cards in the next few months, given that the current situation appears to make the country virtually ungovernable. Indeed the leading candidate to be PM has already declared it impossible to govern and has returned his mandate to the president. That didn't take long!
Don't forget Ireland hold a referendum on the EU fiscal pact on May 31
Equity markets,- Greece aside -, have not ended up too badly. The Dax finished +0.12%, the CAC40, unbelievably +1.65%. Even more unbelievably, Italy and Spain were both +2.7%! The S+P was +0.05%. Greece dropped 6.7%.
Technically, the Euro opened with a Gap lower from Fridays close. In typical Asian fashion we made a new Monday low and have spent the rest of the day grinding higher to fill the gap, ultimately ending up not too far away from Fridays close. Until we see a daily close below 1.3000, possibly below today’s 1.2954, I don't think we should consider the Euro to be breaking lower. It probably will happen but we need to give it time, and an Asian Monday low is definitely not the right time.
So 1.2954 is 61.8% of the move from 1.2623/1.3485. This takes on even greater importance now on the downside. Below here, 1.2925 (25 Jan low) and 1.2868 (20 Jan low) act as support, ahead of the next Fibo level (76.4%) at 1.2825.
On the topside, the gap needs to be fully filled at 1.3078, which also acts as 38.2% of the fall from 1.3283/1.2954. Above here, 1.3118 (50%) and 1.3156 (61.8%) will provide hurdles to be overcome.
The momentum indicators are pointing higher but could run out of steam if we don't make some headway soon. This looks unlikely in Asia and I suspect a range of 1.3030/1.3080 may cover it for the next few hours. The 4 hourlies are turning higher but the dailies are completely flat, so do not discount a few more days of choppy trade that ends up going nowhere fast. Overall I still have a preference to join sellers into strength, given the situation in the EU, but be careful of getting short too early, in front of a possible short squeeze.
Today is light on data and sees German Industrial Production, and a couple of Business Confidence Indices from the US as well as a couple of Fed Governors speaking late in the session.
