EUR/USD: 1.3165The Euro finished the week almost on its highs after reaching the 14 September peak with the US$ under pressure, given the lack of progress on the fiscal cliff negotiations. With only 2 weeks to go until the 31 Dec deadline, things are not looking encouraging here and the dollar looks likely to remain under attack unless there is some kind of breakthrough to the current impasse.
Although still below 50, slightly better than expected EU composite PMI for December also helped to underpin the Euro, while in the US, the data was mixed with the CPI -0.3%, and the was IP + 1.1% as a result of construction work after Hurricane Sandy.
The week ahead will see conditions thin out rapidly as we approach the holiday season but the point of focus will remain the same and we could see some exaggerated moves on little volume so keep stops pretty tight. The longer there is no progress on the US budget negotiations, the greater the pressure looks likely to be on the dollar and probably on US equities as well.
From a technical perspective, the Euro looks capable of further gains, although it won't be easy after the latest EU meeting finished on Friday with little progress of its own, and as Angela Merkel said, the EU bloc faces " two years of painful reforms, slow growth and high unemployment".
If the Euro can manage to overcome Fridays high, the next target of note is at the 1 May high at 1.3283, with interim sellers to be found at the minor resistances at 1.3200 and 1.3240. Above 1.3280, if we see it, things could begin to accelerate somewhat and a move towards the 27 march high at 1.3385 and potentially to the 24 Feb high at 1.3486 would seem possible.
I don't think a move of this magnitude is likely in the short term, and probably not this week, although the daily MACDs do have a mildly positive bias, but the RSIs are showing some divergence and the stochastics are beginning to look bit overbought.
There should be good support now at 1.3120, which was previously the 38.2% Fibo resistance of the major move down from 1.4939/1.2042. Below there would see a return to the range with minor bids likely to be seen at 1.3080 and 1.3015, but with the trendline support to be found down at 1.2960.
All up it would not surprise me to see the Euro attempt to push on to see what lies at 1.3200 before returning a little lower towards 1.3100 later in the week. There is little data out to drive it one way or the other, - although the German IFO and the US GDP could decide differently -, so political speak, in a race to the bottom, from either side of the Atlantic is likely to be the major factor driving markets in the next few days.
Economic data highlights will include:
M:
T:
W: German IFO,
T: German PPI, US GDP, Personal Consumption Exp, Philly Fed Mfg Survey.
F: Reuters/Michigan Consumer Sentiment Index (Dec), Personal Spending (Nov)
