EUR/USD: 1.2225
The Fed left rates unchanged today but has done little to put the market out of its misery and rather than adding any stimulus to boost economic activity, have merely suggested that rates will be kept low until late 2014. Bernanke went on to note that the economy has lost momentum and that the Central Bank will continue to closely monitor the economy and will provide further monetary accommodation as required.
So, for now, it looks like more of the same; hoping and waiting for the magic words QE3 and it won't take too long for the speculation to reignite, as Friday sees the NFP/Unemployment data, when the guessing game will once again begin as to when they will act. Today's ADP employment rose by 163K vs +120K exp. If that flows through to the NFP, don't worry about seeing any QE3 in September.
Before then of course today's main act will come courtesy of the ECB, with the market eager to learn exactly what Mario Draghi intends to do to back up late weeks statement that he will do "whatever it takes" to turn the EU around. Any lack of follow-through will not paint a pretty picture for the Euro and a quick return to the recent lows would be the most likely outcome. Periphral bond yields though headed a little lower today,in the hope of a positive outcome from the ECB, although the Bundesbank again poured a little cold water on affairs by reminding the market that the ECB have a mandate, within which they are required to work.
The Euro for its part today has had a swift 100 point drop, to sit on the important support at 1.2220 (1.2217 =50% of the recent rally from 1.2042/1.2390). Stops lie below this and could well see a quick dip towards 1.2175 and possibly 1.2124 (61.8% + 76.4%). These levels should remain unbothered, at least before the ECB meeting later on, but the 4 hour momentum indicators are pointing lower, so until the ECB decision is known, it looks as though the pressure will remain on the downside.
If M. Draghi comes up with the goods, the Euro will look back to the topside, and depending on what the press conference reveals, the first port of call for the Euro would be the session high of 1.2335. Beyond that, the 1.2380/1.420 area should see some keen sellers but a break would see a reasonably quick move along to 1.2515 Fibo resistance (38.2% of 1.3282/1.2042) and then possibly even to the 50% pivot at 1.2660.
Right now, 1.22/1.23 looks as though it will cover it and again, it seems to be a session of sitting on hands, given that the volatility until the end of the week looks to be entirely event driven.
Aside from the ECB, we also get the EU PPI data.
