EUR/USD: 1.2265
The euphoria following the EU leader summit now seems like ancient history, given the volatile conditions and eventual swift decline last week, which culminated in the Euro making a 2 year low after the NFP data, reaching 1.2260, before a mild bounce to close at the previous support of 1.2288.
The Interest Rate Cuts of last week, supposedly in order to help boost confidence and economic growth, look to have been completely ignored, and as if to reinforce the reality of the situation, the Spanish PM Rajoy said over the weekend that additional steps will be taken in coming days to reduce the country's debt spiral and that Spain's 17 autonomous regions must accelerate their efforts to cut spending. Spanish bond yields soared into the end of the week, closing at 6.95% and look as though they are again headed to the wrong side of 7%. No comfort there, and it will make this week's Eco. Fin. Ministers meeting, to sort out the conditions for last week’s Leaders Summit, a pretty tense affair. Going round in circles springs to mind!
Now that 3 of the major Central Banks have eased monetary supply, there is little prospect in the immediate future of any further action, with the Fed not meeting until 1 August, and thus we will be back to news headlines to provide direction. The economic highlights this will week will come from China, commencing with the CPI, PPI, today and then the 2Q GDP on Friday. We also begin the 2Q US reporting season, kicking off with Alcoa’s report later in today's session.
Technically the break below 1.2288 suggests that the decline might pick up some speed, and below Fridays 1.2260 low would target the 61.8% projection of 1.3282 to 1.2284 from 1.2747 at 1.2133, with the 100% extension being at 1.1745. Before then though, the major target for this decline is at 1.1875 (June 2010 low).
The upside now has minor resistance at 1.2360 and then at 1.2405, where the Euro bottomed before bouncing last Wednesday. Above this the First Fibo level to watch is at 1.2518 (23.6% of 1.3282/1.2260). Given the importance that 1.2520 has assumed in acting as a pivot over the last couple of months do not discount a return higher, to take a look at it once again, although right now it looks pretty doubtful. This level (1.2520) was also the neckline of what I assumed, about 6 weeks ago, to be a potentially large head Shoulder formation.
Although it is a little messed up by the gyrations of the last few weeks, the overall principal still applies. If this turns out to be correct, then the objective for the Euro is at about 1.0300.
For Asia today look to 1.2250/1.2330 to provide an initial guide.
Economic Data this week includes:
M: China CPI, PPI. German Trade Balance, Current Acc, Eco Fin Min Meeting
T: China Trade Balance, Eco Fin Min Meeting, Sentix EU Investor Confidence, Draghi speech
W: German CPI, US FOMC, Trade Bal, Wholesale Inventories.
T: ECB Monthly Report, Industrial Production, Jobless claims
F: China GDP, retail sales, Industrial Production.
