EUR/USD: 1.2435
Friday saw the Euro make a strong recovery from a new 2 year low, as the Non Farm Payroll data added only 69,000 jobs (with Aprils figure adjusted lower from +115k to just +77k) and US Unemployment rose for the first time in a year, to 8.2%. The US recovery is now again in doubt and will add pressure on the Fed to act, by injecting liquidity to the economy through QE3. The strong Euro rally was undoubtedly assisted by the fact that the latest CFTC data showed that IMM contracts equate to record long US$/short Eur positions of $37.5bio, and this only added fuel to the fire as the shorts were forced to cover.
The China PMI got the ball rolling early in the session and there was no relief from the EU Zone data. The US numbers topped off a bad day, and the global growth story does not paint a pretty picture. Equities of course, all had a shocker. They are picking up downside momentum, and it looks as though we are in for a very volatile period in all markets.
Although politics were forgotten about for the day, they are never very far away from the action and normal service will probably be resumed early this week. Friday saw the Spanish Finance Minister declare that the future of the whole Euro is likely to be resolved in the next few weeks, as events play out in Spain and Italy. – I think he’s pretty hopeful! This is going to drag on for years to come...
Elsewhere in Spain, the PM, Rajoy has called for countries within the EU bloc to abandon control over their own national budgets and to have them controlled centrally from Brussels. That should go down well in Germany! Just to make her point, over the weekend, Germany's chancellor Angela Merkel has reiterated her opposition to jointly-issued debt saying that "under no circumstances" would she agree to Germany-backed Eurobonds.
We are also approaching the June 17,Greek election, which if the polls are anything to go by, will be more or less a dead heat, taking us back to square one, and which would only drag the Euro lower. Over in Cyprus, its president, Christofias has put his hand up, by suggesting that his country could be next in line to need an emergency bailout. Given Cyprus' heavy investment in Greek bonds this would hardly be a major surprise.
In the meantime, the data has shown that it is dead wrong to go and blindly buy dollars. The US has plenty of troubles of its own and as the US election starts to loom on the horizon, Obama is going to have his work cut out to convince the electorate to give him another 4 years, given the current state of the economy and the real lack of any jobs growth.
The charts had an interesting session on Friday, having an outside day, and suggesting that we may have a session or two where the Euro continues to squeeze the shorts out a little further. I suspect that in the near term we have put in a near term base.
Levels to watch are - on the topside - at 1.2460 and then at 1.2500 and 1.2525. For the longer term Head and Shoulder formation to remain uncomplicated and relevant, I do not really want to see the Euro above here! We shall have to wait and see but a break above 1.2525 would most likely see a quick move to 1.2670. This would not necessarily negate the Head-Shoulders, but could make it a little messy. In the meantime the long term objective for this is at around 1.0350.
The downside currently looks to be protected at 1.2365 and then there are minor, intraday levels at 1.2335 and 1.2300 before Friday’s lows of 1.2288. I still think that in the longer term, we are on target for 1.1875 (8 June 2010 low), and then, as I have said possibly to 1.0350, but that is a long way off yet and we may need to do s bit of work around current levels for 24 hours or so.
For Monday, use 1.2380/1.2480 as an initial guide.
Data highlights include:
Mon EU PPI, US Factory Orders
Tue EU PMIs, Retail Sales German Factory Orders, US Non-Mfg ISM
Wed EU GDP, German I/P, ECB I/R Decision, Draghi Press Conference,
Thur Bernanke testifies, Jobless Claims
Fri German Trade Balance, US trade Balance, Wholesale Inventories.
