EUR/USD: The Euro finished on a weak note on Friday, weighed down by Mr Draghi's comments the day before when he stated that the exchange rate is important for growth and price stability. The market has taken this as a sign that the bank is concerned about the recent advance to 1.3710 and for the time being it does not look as though we are heading back up there.
The dollar received mild support on Friday from the US data, where the trade deficit came in narrower than expected at USD -38.5b in December.
The week ahead will see little of economic importance until Thursday when we get some important data out of Europe in the shape of the German / EU GDP and the ECB monthly report, but there is little out of the US in the coming week. Asia will be even quieter than usual due to the Chinese New Year celebrations and I would therefore suspect that unless there are any politically driven statements we could be in for a rather choppy but directionless week. The EU GDP data will probably not be very pretty and thus would do little to assist the Euro.
Technically the Euro is tenuously holding onto support at 1.3360 (76.4% of 1.3250/1.37100) and although the 4 hourlies and the dailies are now both pointing lower, in the very short term there may be better levels to sell at, given the bullish divergence on the hourly charts.
If/when we do break to the downside, buyers should appear at 1.3315 (23.6% of 1.2042/1.3710) and below that there is minor support at 1.3280 and again at the minor rising trendline at 1.3260 (chart below). Under here we head towards 1.3170 and then to 1.3135. I don't think we are likely to see anything of this magnitude in the next few days and would be surprised, - if we do head lower, - to see it much under 1.3250. If wrong, the major support comes in at around 1.3070 (38.2% of 1.2042/1.3710.), which if seen should be very strong.
If the short term bullish divergence, as seen on the hourlies, does come into play, sellers will congregate near 1.3400 and above this at 1.3435 (23.6% of 1.3710/1.3353) and then at 1.3487 (38.2%).
In the longer term, we should not discount a short term move lower, but the support between 1.3070 and 1.3250 may well hold, for a medium turn higher again in the Eur. It doesn't look like happening any time soon, given Mr Draghi's comment last week, but keep an eye on the dollar index (DXY) for possible break of the Head/Shoulder neckline on the weekly charts. If this gives way, we may then see an acceleration lower, which would mean a return of Euro strength with a longer term target of around 1.4300. In the meantime I think we are in for some choppy consolidation.
Economic data highlights will include:
W: US Retail Sales
T: German, EU GDP, ECB Monthly Report
F: US Industrial Production, Rts/Michigan Consumer Sentiment Survey.
