EUR/USD: 1.3640.The Euro did not wait for the NFP to break above resistance at 1.3600 on Friday, doing so in early Asia and not really looking back. It was then a pretty choppy session in Europe and the US, initially trading up to 1.3670 and then dropping all the way to 1.3588 after the NFP, before roaring up to the session high at 1.3710 and finally drifting off to mid 1.36 at the end of the session.
The NFP data was largely as expected, indicating that the US job market grew by 157k in January, against expectation of 160k and the December figure was revised up from 155k to 196k. The unemployment rate unexpectedly edged up from 7.8% to 7.9%. Other data showed that the US ISM Manufacturing Index rose to 53.1 (exp 50.7) and was the best number in 7 months. Earlier in the day the EU and German manufacturing PMI's were released, both a bit better than expected (although both are still below 50) and did no harm to the Euro.
With risk sentiment seemingly improving a little, the general theme of the moment continues to see a flow of capital back into the Euro and there seems to be more room on the upside. Take one look at the sharply lower yields in the peripheral EU bond yields to see that some stabalisation is occurring. Italian yields are now at 4.3% while Spain's are at 5.2%. The Euro gains have been broad based and it has broken some important technical levels, not only against the dollar but also on the crosses. The one note of caution here is that the rise in the Euro is not coming at a good time for the EU and its export markets. We could see some negative comments about this at the ECB Press Conference on Thursday, which could provoke a correction. Certainly the market has not priced in the outside chance of an ECB rate cut to combat a stronger Euro, which would see a bit of a rout.
Technically, 1.3710 is now the first resistance, although there should be some minor selling interest around 1.3670/80, and with the daily indicators pointing strongly higher, it would appear that we are headed for a test of a wave-equality target at 1.3790 (100% projection of 1.2042 / 1.3171 from 1.2661 at 1.3790) and probably the Fibo resistance at 1.3820 (61.8% of 1.4939/ 1.2042). Beyond that, it would be of little surprise if we are heading towards the resistance (weekly chart below) at 1.4240, although this is some way off yet.
Check out the Dollar Index - The DXY is beginning to look pretty ominous and I suspect that we need to be concentrating pretty seriously on the Euro in the weeks ahead for the possibility of a strong move higher.
Dips should now be limited to around 1.3580 but if we do go lower, I suspect that we are likely to be in for some consolidation of the recent gains and further support will be seen at 1.3540, 1.3500 and 1.3470. I don't really think we are going back to these levels in the near term, but if we do, I suspect they will provide an opportunity to get set for another leg higher. Back below 1.3400 would prove me wrong and need a reassessment.
To start the week we may be in for some sideways action within 1.3600/1.3700 to allow the short term charts to unwind their overbought nature. While the preference is towards buying dips, looking for an eventual break higher, in the absence of any major data ahead of the ECB rate decision on Thursday, it would not surprise to see some choppy but rather directionless trade early in the week. The ECB are expected to stay unchanged (0.75%) but the press conference will be very closely watched for the tone of the language from Mr Draghi.
Economic data highlights will include:
M: EU PPI, EU Sentix investor confidence, US factory orders
T: EU Retail Sales, Services PMI's, ISM Non-Manufacturing PMI (Jan)
W: -
T: ECB I/R Decision, Press Conference.
F: EU Trade Balance, US Trade Balance, Wholesale inventories.
