EUR: 1.2570
The long awaited statement from Ben Bernanke at Jackson Hole came and went without any real resolution on whether or not we can expect further economic stimulus in coming months although Bernanke remained very dovish. There was no immediate move to implement QE3, but he did say that he remains open to the possibility of further asset purchases and that the Fed will act to boost growth as needed. He added that he has grave concern for the employment market as the US economic performance remains far from satisfactory, and given that we have the US NFP/Unemployment data this coming Friday, it could yet be that we see the Fed make a move at the next FOMC meeting on Sept 12/13.
The Euro made its move before Bernanke spoke and exactly reached the 1.2640 Fibo resistance (23.6% of 1.2042/1.2589) before turning lower again. At the end of the day we have ended up pretty much where we started at 1.2570, so this issue is going to remain on the back burner and will continue to dominate trade, at least until Fridays NFP data, and probably for the next 2 weeks until the FOMC.
Elsewhere on Friday, it was a bad day for Spain, after Catalonia was downgraded to junk status and Bankia needed a second capital injection. Word went round that the Spanish sovereign credit rating may be under pressure in coming weeks and bond yields headed strongly higher to just under 6.9%. Spain also announced on Friday that it will be setting up a "bad bank" to sweep up all the toxic debt. All this news got rather lost given the market concentration on Jackson Hole, but the issues in the EU are still very much in focus, and will keep the pressure on the Euro in the coming week. The ECBs Nowotny was pretty bearish about the whole situation early in Fridays European session and noted that the economic uncertainty in Europe is growing enormously.
Over the weekend we have had the China official manufacturing PMI which came in lower than expectations, at 49.2, doing little little to help the risk trade early in the week, and will place further pressure on the current Chinese administration to act and cut rates, despite the handover of power to the new generation of rulers in a couple of months time.
Technically, on the downside, support should be found at the minor rising trendline, currently at 1.2510 and then at 1.2460 (23.6% of 1.2042/1.2589). Below this 1.2400 (50% pivot of 1.2742/1.2042) comes into play, where the channel base also now lies.
On the topside, sellers will be seen as we approach 1.2600. Greater resistance lies at Fridays high and channel resistance at 1.2640, ahead of Fibo resistance at 1.2720 (23.6% of 1.4935/1.2042).
With the indicators being a bit mixed, expect another 1.2500/1.2600 session.
Looking ahead, we have a major week of economic activity, with all the EU and US PMI Data early in the week, to be followed by the ECB meeting/Interest rate decision on Thursday, at which Mr Draghi will supposedly pull a rabbit out of the hat and solve the EU debt crisis by announcing the much anticipated bond purchase programme (prepare for disappointment on that one). We then have the US Non Farm/Employment data on Friday. All up it looks like being a very busy week, which after the August malaise, well be very welcome! Today is the US Labor Day holiday, so the market will be thin/quiet later in the session and it will be tomorrow when the market finally gets back to reality, with the holiday season finally behind us!
Economic Data this week includes:
M: EU Mfg PMI Data, US Labor Day.
T: US Mfg PMI, Construction Spending, ISM
W: EU Services PMI, EU Retail Sales
T: ECB Rate Decision, US ADP Employment, Jobless Claims, USM Non-Mfg
F: German Trade Balance, Industrial Production, US NFP/Unemployment
