EUR/USD: 1.3040In the 2nd day of his testimony to Congress, Mr Bernanke repeated his theme of the previous session, reaffirming the Feds efforts to stimulate the US economy through the current QE programme. This has seen equity markets continue to recover while the US$ has weakened, allowing the Euro to find its feet and recover some of its recent lost ground, moving sharply higher late in the NY trading day.
In other data, better than expected US housing data &durable goods ex-trans numbers underpinned the equity markets and assisted the risk currencies.
Elsewhere, Mr Draghi has been speaking, without adding much that the market did not already know and generally followed the usual line, suggesting that any fears of the Euro breaking up were unjustified and that the ECBs current policies to stimulate growth in the EU were not inflationary.
Italy held a bond auction today, which went off surprisingly well considering the election impasse, and sold EUR 5b in 10 year bonds with yield at 4.83%
Technically the 4 hour charts continue to recover from their oversold conditions and the Euro is a little higher than yesterday but has been capped, so far at the 1.3140 resistance, after spiking up from 1.3085 late in the US. Further short term rallies should not be ruled out given the current positive momentum in the charts and it is possible that we could head towards 1.3180 (23.6% of 1.3710/1.3017). I don’t think that we are heading too much above 1.3200 today, but if wrong 1.3240 (minor) and 1.3280 (38.2%) will see offers. The neckline of the Head/Shoulders is at 1.3300 and we have to allow a return to this although probably not today, but if we go above 1.3300, then the current medium term bearish view would need to be reassessed.
Should the Euro run out of steam and decide to head lower, 1.3040 (today's low), 1.3017 ( Mondays low) and then 1.3000 will provide solid support, with 1.2995 being the 100% correction of the move up to 1.3710. Below here, there could be a bit of an acceleration, with the next support not really to be found until 1.2905 (76.4% of 1.2671/1.3710) and then more bids should be seen at 1.2875 (7 Dec low), but eventually, as previously mentioned, I would be looking for a test of the Head & Shoulder objective of 1.2840.
Today's strategy looks like one of selling rallies at around 1.3200, with a view to buying them back if/when we head back towards the low 1.3000 area, with stops placed above the channel top/H/S neckline at 1.3300.
Economic data highlights will include:
German Unemployment, EU CPI, US GDP, Jobless Claims, Chicago PMI.
