EUR/USD: 1.2250
It probably comes as little surprise that the reaction to the EU Fin Min meeting has been one of disappointment as far as the Euro is concerned, trading today against the dollar to another 2 year low (1.2243) and to a 31/2 year low against Sterling (0.7896). Early European strength to 1.2334 quickly dissipated as doubts over the ability of the rescue plan to pull Spain out of its downward spiral weighed heavily on markets, although Spanish bond yields have eased a little to finish back under 7% following overall consensus for the rescue package. Italian yields were back to 5.9%.
Elsewhere, Chinas imports in yesterday's trade data having halved to 6.3% have ensured that Fridays upcoming GDP data will be very closely watched and another weak number will ensure added pressure to the downside as the global growth outlook turns lower.
Before then though we get the latest FOMC minutes in today's NY session. I would imagine that the dollar will do little until then, with the likelihood that further dollar strength will be muted, just incase there is any hint of QE3 rating a mention, in which case we could see a sharp about turn in the dollar. Following last week's NFP reading, it may be that we do indeed see some action from the Fed in the next couple of months and so the price action looks likely to remain choppy and nervous. Bernanke will at least keep the market guessing on this, for fear of causing a sharp fall in the equity markets if he were to rule it out altogether.
So the Euro remains very heavy and the hourlies are showing that this will remain the case for the next few hours. Likewise the dailies are not offering whole lot of assistance, showing lower levels ahead in days to come. However the 4 hour charts are now rather oversold and showing some divergence so bounces to levels back above 1.2300 can be expected as we ratchet eventually to the downside.
The levels to watch on the topside today are at the session high of 1.2334, 1.2360 and then 1.2405, where the Euro bottomed before bouncing last Wednesday. Above this the first Fibo level to watch is at 1.2476 (23.6% of 1.3282/1.2243). As I have said before, 1.2520 has assumed some importance in acting as a pivot over the last couple of months, so do not discount a possible return to this level, although right now it looks highly unlikely. Right now the days high at 1.2334 looks to be a tough call.
The pressured side does look lower, and below today's 1.2234 low, would target would target the 61.8% projection of 1.3282 to 1.2284 from 1.2747 at 1.2133. This level also acts as 50 % of the major move higher from 0.8211/1.6033. The eventual target for this move remains 1.1875.
Aside from the FOMC, look out today for the German CPI.
For now, look for 1.2230/1.2300 to cover it, with the usual bias to the downside.
