EUR/USD: 1.2760The Euro has traded pretty much as we thought it might and has used the session to consolidate below the highs of Fridays strong rally, ahead of the German Court ruling tomorrow, and then the FOMC meeting on Thursday.
There is little more to add until we get a result from these events, although the UK Press are reporting that there may be a delay in the court ruling while the results of last week's ECB meeting where Mario Draghi announced a bond buying programme of “outright monetary transactions”, designed to lower the bond yields of the likes of Italy and Spain, are assessed. This kept a cap on the topside for the Euro today, but the Dollar was unable to make much ground either, as the market lives in anticipation of the Fed announcing some form of economic stimulus to add liquidity to the market, possibly in the form of QE3.
Thus we sit in stalemate and look likely to do so again today as we await the results from the 2 key events of the week. Given that the Court ruling is largely expected to be passed and that the market appears to have decided that the Fed will act - in some form or other - it seems to have priced in much that is positive for the Euro, and the danger is, that we get a negative vote from Germany and that the Fed do nothing. This would produce a very swift dollar rally, with the market far less short than it has been in recent months, following the recent squeeze higher, so remain flexible.
Elsewhere today, the Euro had little reaction to news that Troika has rejected a EUR 2b part of the EUR 12b austerity package of Greece. More should come out on that in the next couple of days.
Technically, little has changed from yesterday.
Having broken above the top of the previous channel, the market should continue to hover at around 1.2800 and will be watching the 200 DMA at 1.2840, where there should be plenty of selling interest, should we get that to those levels. A break above this would see an acceleration higher and I don't see too much resistance until we see 1.2900 and more importantly 1.2973 (16 Feb low).
The downside today has held 1.2750 and may continue to do so. A break would see a return to test the strength of the channel top, now at 1.2715, below which would see further buyers at 1.2650 and 1.2600.
While the daily momentum indicators still point higher, the 4 hourlies (chart, below), are still very overbought and with this in mind I would be fairly flexible in my position taking, as it looks to me as though we have some choppy trade ahead of us before a more directional move later in the week.
Today looks like being a re-run of yesterday's session and therefore I would continue to use 1.2700/1.2840 - and more likely 1.2715/1.2815 - as a guide until we get some resolution on the German court ruling.
We get the US Trade data out later on today which may provide some volatility. There is little out from Europe aside from the usual political sound bites. Stay nimble !
