EUR/USD: 1.2335The Euro finished a very lacklustre week, as evidenced by the 129 point range, the lowest since 2007and it does not look as though we will see a great deal of change early in the week, with the market looking to focus on the event risk, beginning on Wednesday with the FOMC minutes, followed by the manufacturing PMI data on Thursday. Further out, the market will also be watching for Ben Bernanke's testimony at Jackson Hole on August 31, where QE2 was first broadcast in 2009. The market will be eagerly waiting for a mention of QE3, and if nothing is mentioned, we can expect a pretty healthy equity market reversal and a consequent move back into dollars and out of the risk currencies.
More immediately, in Europe, Greek PM Samaras will be meeting with EU leaders later in the week to convince them that Greece will be able to stick by the austerity measures but that he will need more time to do so. The picture seems pretty confused here. On the one hand, there is plenty of opposition in Merkel's government to allowing an extension, but Merkel herself seems to have given tacit support to Mario Draghi's comments of a couple of weeks ago to assist the EUs indebted nations, with a hint that she may be supportive of the ECB buying Spanish and Italian debt. It therefore appears to be a fairly fine line as to whether Greece will or will not receive the extra time that they want, but a decision will not come this week, and we will have to wait for the Troika (EC,ECB, IMF) report in September. A weekend Reuters report suggests that the chances of Germany agreeing to any change of the Greek austerity conditions are slim, and may add some short term pressure to the Euro. Watch this space.
Technically, there is currently very little to add to last week's update, although the longer this lull continues, the bigger the move could be when eventually the market does decide to get back into gear - probably following the Jackson Hole meeting.
We continue to fail to make any sustained progress above the 1.2363 level (61.8% of 1.2442/1.2240) and did not even make it to the weeks high of 1.2385, with Friday failing at 1.2381. The oscillators are still not suggesting very much at all and it could be a pretty quiet Monday session. I still vaguely prefer a mild test of the upside, based more than anything that the S+P Index needs to take out the 1420 resistance and leaving short term risk positions with a slightly positive bias. (Be careful of a decent correction in the equities though, if/when we do see a new high). Right now we need the Euro to get above 1.2380/85 in order to test the sellers above 1.2400 and then 1.2442, the high following Draghi’s comments on 7 August . Above this sees 1.2472 (61.8% of 1.2742/1.2042) followed by the neckline resistance, currently at 1.2525, and then 1.2574 (76.4%). I am not sure that the Euro has the legs to get to these lofty levels unless there is an unexpected positive move from the EU.
On the downside, the short term channel base at 1.2255 held nicely, before the bounce(see Fridays chart), and this remains the first support in the coming week. Any negative political comment could quickly change that, and a break would see a test of minor support at 1.2215 and 1.2190.
More important support would then be found at the 2 August low of 1.2133 below which would suggest a retest of the 24 July, 1.2042 low.
It remains rather uninspiring and I really cannot see the market getting too involved on Monday, and it may be the FOMC minutes on Wednesday before we see any real action. For Monday, use 1.2280/1.2380 as a guide.
Economic Data this week includes:
W: Samaras, Junker meeting, FOMC Minutes, Existing US Home Sales
T: China Leading Economic Index, HSBC Flash Mfg PMI, EU Consumer Confidence, German GDP, French/German/EU Mfg and Services PMI, US Mfg PMI, New Home Sales.
F:Samaras/Merkel/Hollande meeting, US Durable Goods
