EUR/USD: 1.3350 The Euro had a choppy session on Friday, spiking higher to 1.3392 after the ECB's Weidmann said that there would be no rate cut in order to weaken the Euro. Following this early European move higher, good sellers then drove it down to 1.3305 before support came in, through buying of Eur/Jpy, following comments from the G20 that Japan would not be singled out for attention with regards to the current level of its currency. The final communiqué was a pretty watered down affair and stated that monetary policy would be directed only at price stability and growth – but contained no mention any targeting of FX rates.
Main points of the communiqué, care of Reuters:
http://www.reuters.com/article/2013/02/16/g20-statement-idUSL6N0BG0Xd20130216
Also of note on Friday was that the usually dovish Cleveland Fed board member, Sandra Pianalto suggested that QE could end sooner than expected, which came on the back of some upbeat comments from Bernanke, and if QE is reduced from its $85 bio per month, would be a positive for the dollar.
On the data front, US Industrial production contracted on Friday, -0.1%, suggesting that the US still has plenty of economic problems of its own, and will not want to see a dollar much stronger than current levels, despite the rest of the world running a race to the bottom to see who can have the weakest currency.
Looking ahead, there is plenty of secondary data out this week, mostly from Europe but little from the US, FOMC minutes aside, and the outlook appears to be for some choppy trade with a slightly negative bias for the Euro. The Italian election will take place on 24–25 February and the market will begin to focus nervously on this, with concern of a reappearance of Mr Berlusconi and the Bunga Party!
Technically, the dailies look heavy and a test of 1.3250 may well be on the cards in the next couple of days. In the meantime, the 4 hour charts are showing some mild bullish divergence and in the short term it would not surprise to see Fibo support at 1.3315 (23.6% of 1.2042/1.3710) hold for a mild short term bounce towards 1.3400 and perhaps 1.3440 which if seen would attract plenty of sellers. Given that Monday is a NY holiday it will be a fairly thin session and a day of 1.3320/1.3420 would not surprise with the Euro most likely seeing some support though fresh Eur/Jpy purchases.
Further out, although the dailies are pointing towards lower levels, the weeklies are not suggesting anything very much in either direction and I therefore would imagine that we are merely going to range trade at slightly lower levels than we have been recently, and over the course of the week I would imagine that 1.3200/1.3400 could cover it.
Economic data highlights will include:
M: US Presidents Day Holiday, EU Current Account
T: German/EU ZEW Economic Sentiment Survey.
W: German CPI, PPI, US PPI, Building Permits, Housing Starts, FOMC Minutes.
T: EU Services, Manufacturing, Composite Flash PMI, US CPI, Existing Home sales
F: German GDP, EU CPI
