EUR/USD: 1.2290The Euro continued to sag through much of Fridays session, as optimism continued to subside that the ECB is about to act vigorously to assist Spain and Italy to lower their borrowing costs.
A slow drift lower for the Euro, came about as traders bought safe haven dollars following the sharply weaker than expected export data from China, hinting at further global economic contraction. The move was sharply reversed late in the session with a quick spike back to 1.2316 in thin trade, before the Euro settled into late-Friday drift mode, finishing up pretty much unchanged on the day.
Overall, the Euro looks as though it will continue to chop around without too much direction and may trade either side of current levels early in the week. Some downside pressure will remain, given the ongoing soft economic numbers and a weak EU GDP on Tuesday will add to the speculation of a forthcoming rate cut from the ECB. However the market will be reluctant to sell the Euro too aggressively, just in case the ECB actually are able to back up the recent rhetoric from Draghi and Noyer, with something affirmative to assist Spain and Italy to lower their funding costs. Given the thin summer conditions, I would not expect too much early in the coming week, although political statements are always likely to cause the odd sharp move, one way or the other.
The topside also appears reasonably limited, although the Dollar Index (DXY) does look as though it wants to test slightly lower levels (ie, higher Euro). This may mean a squeeze back towards last week's high at 1.2442, but I would not look for too much more at this stage.
I would not be getting too excited in either direction right now and sentiment has to remain mostly neutral.
Points to watch are at,- on the downside -, 1.2240 (Friday low), 1.2215 (minor channel base), 1.2133 (2 August low) and then 1.2042 (24 July low).
On the topside, above Friday's 1.2316 high, look for 1.2363 (61.8% of 1.2442/1.2240), 1.2400 and then the recent 12442 high to provide a near term cap. In the longer term, look for a potential move to 1.2707 (38.2% of ) 1.4935/1.2042, although there is a lot of work to do before we get close to this, and we will deal with it if/when it looks a little more likely.
Overall pretty uninspiring, and look for Monday to be contained in reasonably narrow 1.2260/1.2360 range with a mild upside bias but I don't see too much ahead of the EU GDP to kick the week into action, when we also get the ZEW economic survey.
This week's economic data includes:
M:
T: EU/German GDP, ZEW Survey, US Retail Sales,
W: US CPI
T: EU CPI. Philly Mfg Survey
F: German PPI, EU C/A, Trade Balance, Rts/Mich Consumer Sentiment Survey.
