EUR/USD: 1.2565The Euro is slightly firmer today following the cancellation of Mario Draghis appearance at Jackson Hole on Friday due to his heavy workload.
This has raised speculation that the ECB will soon announce some form of bond buying programme to assist Spain and Italy to reduce their borrowing costs and lifted the Euro from session lows at 1.2465 to current levels, just below its seven week high of 1.2589. We shall now have to wait until 6 Sept at the next ECB meeting to find out what Mr Draghi has in store. In order to provide him with a reminder of the urgency of the situation, the Spanish region of Catalonia today asked for help from Madrid to the tune of Eur 5 bio as they are no longer able to balance their budget.
Otherwise the market largely remains on hold, as it waits for Ben Bernanke to announce his own form of economic stimulus for the US, through QE3, although there are plenty of economists that are sceptical that he will do so. We shall have to wait and see, but quite a few analysts seem to think he may just make a statement that the Fed will maintain interest rates at very low levels for even longer than the 2014 deadline it has already committed to. This would be quite a disappointment I think, and would see the dollar strengthen across the board and would see equities take a bit of a dive. The better than expected Case Schiller House Price Index (+0.6% against exp. -0.1%) gave further credence to the improving housing market and has seen a little more caution with regards to QE3 expectations. On the other side of the coin, US Consumer Confidence dropped to 60.66 against expectations of 66.00.
Just going by the charts though, a much stronger dollar does not appear very likely. The Euro daily indicators are picking up a little positive momentum and look as though they may want to test the top of the daily descending channel resistance (pink line), currently at 1.2650.
In the mean time I would not expect too much action and suspect that 1.25/1.26 will continue to cover the coming session.
Short term resistance is now to be found at 1.2590, above which we run into the 100 DMA at 1.2605. Above this, the converging channel resistance currently in the 1.2625-1.2650 area. We then see Fibo resistance at 1.2720 (23.6% of 1.4935/1.2042)..
The downside, has minor support at the rising trend line, currently at 1.2490 and then at the day’s low of 1.2465. Below this 1.2392 (50% pivot of 1.2742/1.2042) comes into play, above the channel base at 1.2355.
Economic data today includes the German CPI and the US GDP and Beige book. These will be closely watched and may give added impetus to sell dollars if they are weaker than expected, in anticipation of Bernanke. Otherwise it should be another day of sitting on hands.
