EUR/USD: 1.3280Tuesday's positive ZEW data and upbeat comments concerning Q1 growth prospects for the EU fed through to the Asian session yesterday causing stops to be taken out, driving the Euro to 1.3433. That was as good as it got though, and having remained well bid through early Europe on expectation that any further ECB easing is quickly diminishing, the Euro has since dropped sharply following the FOMC Minutes..
These have just been released and suggested that most Fed members saw less risks to the economy now, in comparison with the picture at the end of 2012. Some felt that the Fed may need to reduce asset purchases before any major improvement in the jobs market. This was a lot less dovish than expected and has seen a move back into the dollar.
Technically, the Euro has done roughly as we expected, and having seen some short term strength early in the week it has now turned down and broken last week's 1.3305 low and looks headed back to the strong 1.3255/60 support. Below this would see an attempt to head towards the rising trendline support at 1.3200 but in the short term I would be surprised to see it go under here. If wrong, look for further declines towards 1.3170 and the eventual target is at 1.3065 (38.2% of 1.2042/1.3710).
The 4 hour charts are now actually showing a potential H/S top with the peat at 1.3710. If so, and we are sitting on the neckline at current levels, the target would look to be somewhere around 1.2850, which is also the 50% pivot of 1.2042/1.3710. Something to keep an eye on.
Rallies now will find sellers at 1.3335 (minor) and then at 1.3350 and at 1.3400, which won't be seen in the immediate future.
It looks like it will be a choppy day so be flexible. Later on there is plenty of Europe to keep us on our toes, with the EU PMI,s to kick things off before the US CPI.
Look for 1.3255/1.3320 to cover it for now, with a medium term bias for more downside.
Economic data highlights will include:
T: EU Services, Manufacturing, Composite Flash PMI, US CPI, Existing Home sales
