EUR/USD: 1.2275
The Euro started the week quietly in Asia but drifted slowly lower by the time that Europe arrived, with the market focusing on the Chinese Premiers weekend comments that things in China could get worse before they improve, describing economic conditions as "challenging and complex". This took some of the heat out of Fridays risk rally as the Euro slid back under 1.2200 before recovering once the US session got underway. The EU inflation rate was as expected, at 2.4%, and had little effect, but some downside pressure was exerted through Eur/Gbp which fell to a new 3 1/2 year low at 0.7855.
Equities had a tough start, with the Shanghai B down 1.7%, putting it into negative territory on the year and to levels last seen in 2009. European equities were later pretty flat and then the US session remained heavy following the weak US retail Sales, with the S+P closing -0.23%
The Retail Sales, unexpectedly down 0.5% (exp +0.2%), helped the Euro bounce to session highs at 1.2289 as the market now begins to focus on Ben Bernanke's 2 day testimony to Congress beginning tomorrow when it is hopes that he will raise the prospect of introducing economic stimulus through QE3.
Elsewhere today, in the bond markets, Italy's 10-year yields were at 6.056% while Spain's were at 6.657%.
The IMF has released its future economic outlook and it does not make particularly pretty reading with global growth for 2013 cut to 3.9% from the 4.1% that it previously projected. Most major economies had their growth outlook downgraded with the EU and the US both a major concern. Spain was highlighted and looks likely to miss its 2012 budget deficit target, with the deficit reaching 7% of GDP in 2012 and 5.9pc in 2013, which will do little to help the outlook in the EU. China was cut from 8.2% to 8%.
Technically, little has really changed from yesterday. The first target of 1.2290 (23.6% of 1.2692/1.2162) has been reached but is holding at the time of writing.. A break would see a move to minor resistance at 1.2335 before the 38.2% / trendline level at 1.2365. I would be doubtful that we get above this any time soon but if we do, congestion in the 1.2405/20 area should hold.
The downside again has short term support at 1.2210, below which today's low at 1.2175 and then at Fridays low of 1.2162. There are then bits and pieces all the way down to 1.2000, but should again remain untouched today.
Momentum on the 4 hour charts remains higher. It will remain quiet for now as the market settles down to await Bernanke's testimony. Before then though we get to see the EU/German ZEW Survey; US CPI and Capital Utilisation which may provide some volatility.
