EUR/USD: 1.3320The Euro declined on Friday on little new news of importance, although comments from an ECB official regarding the wind down of the LTRO programme that has provided liquidity to the market over the last 12 months, did not help the Euros cause on Friday. Mostly, it was driven around by cross flows that continue to largely dominate trade. We saw some profit taking in Eur/Jpy ahead of next week's BOJ meeting while at the same time Eur/Gbp continued to accelerate higher and Eur/Chf was all over the place, initially heading higher before turning around as profit taking set in to drop 180 points and then saw a bit of a bounce into the close.
The data out of Europe continues to be pretty dismal and the ECB may yet decide to cut rates in the months ahead. This week's German ZEW survey and all the EU PMI numbers on Thursday will give us further insight. Across the Pond, US Consumer Confidence took an unexpected dip on Friday, but the US debt ceiling continues to be the centre of attention and that got a bit of a boost when Republican officials said they would seek to pass a 3 month extension of Federal borrowing authority this week, to give the Senate time to pass a budget plan that will reduce the country's fiscal deficit.
In the meantime it is a US holiday on Monday, so expect a slow start.
Technically, not much has changed since last week. The downside remains protected at 1.3255 - last weeks low - and provides the initial support ahead of 1.3248 (38.2% of 1.2997/1.3402). Below this would see a deeper setback towards 1.3200 (50%) and then 1.3150 (61.8%). The white trendline support is at 1.3020 but looks safe at least early in the week. The daily charts are showing some mild bearish divergence and so, while I don't think we are going anywhere too far, the pressure may continue to be to the downside for the next session or two.
In the longer term, the weekly charts are building positive momentum and thus any short term dips may well be buying opportunities for an eventual retest of last week's 1.3402 high. If we get above there I suspect that we may accelerate towards 1.3485 (50% of 1.4939/1.2041) and possibly to 1.3547 (2 Dec 11 high). As I said last week, this looks some way off but with sentiment seemingly slightly more positive (ie. less negative!) in Europe, given last week's better results from the Spanish bond auction, it appears that overall, short term dips may provide buying opportunities for a medium term move to slightly higher levels.
Economic data highlights will include:
M: US Holiday. Martin Luther King Day, German PPI.
T: EU Eco Fin Min meeting, German/EU ZEW survey, US existing home sales, Richmond Mfg Survey.
W: German 30 Yr Bond Auction, EU Consumer Confidence
T: EU Flash Mfg, Services PMI's, EU C/Acc, Spain Unemployment, US Flash Mfg PMI, Jobless Claims
F: German IFO, US New Home Sales.
