Euro : 1.2685
The Euro rallied again today on increasing hope that the central banks are about to begin to provide further stimulus to kick start economic growth. The market is expecting that the Fed will get the ball rolling by extending the long term bond buying programme –“Operation Twist”- that is due to finish at the end of June.
The market seems pretty positive that the Fed and then later that the ECB are going to act. I think the real risk to the markets now is that they have bought before the fact, and risk disappointment, if any action is perceived to be too little, or non existent.
The rally has come about despite the Spanish bond auction earlier in the day where 12 month bills, despite good demand, saw yields soar from 2.985% at the previous auction, to 5.074% .
Elsewhere, in Germany the ZEW economic sentiment survey plunged from +10.8 to -16.9, which has increased the hope of some action from the ECB, while Greece has been on the sidelines today as the new Government attempts to come to grips with what lies ahead and negotiations continue amongst the interested parties.
Despite the dire ZEW, the markets rallied as the markets look towards the Central banks for some help. The DAX finished +1.84%, CAC +1.69% and the S+P +0.98%.
Technically the charts have behaved pretty much as we expected ,given the FOMC meeting, and the downside has been limited today with a low of 1.2568, before the Euro turned around as risk sentiment improved a little and moved more or less in a straight line up through the session to a high of 1.2730. So we currently trade within a minor channel, trending a little higher with the first resistance,- above today’s high -, at 1.2784 (50% of 1.3284/1.2288). Above this 1.2825 will provide minor resistance, being the top of the channel and the 21 May high.
Levels of support are currently to be found at the 1.2670 pivot and then beneath this at 1.2600 and 1.2520, which looks unlikely to be tested today.
The indicators are mixed and I suspect that we can expect the grind to continue for the next few hours. The dailies continue to head higher and the 4 hourlies also suggest there is room to the upside although the momentum may be waning as the hourly charts become overbought.
Overall it looks to be as though 1.2625/1.2725 should cover it for now, with a mild bias to the topside. The danger is that the markets have become too convinced that the Fed are going to act, and if they actually do either nothing or too little to keep the market happy, then the downside reaction will be quite sharp. We shall have to wait and see on that one. In the meantime, it looks like a range trade, with a reasonably solid bid, unless we get some negative news headline from the EU that undermines the tone.
German PPI and FOMC will be the highlights today.