EUR/USD: 1.3065The Euro remains heavy as the market retains its focus on the political gridlock in Italy, with the dollar being assisted today by US jobless claims that continue to show mild signs of improvement, better factory orders, and the Q4 US GDP, which rose 0.1 %, reversing the previous reading that showed a contraction, but less than the expected 0.5 % gain. In the EU, inflation data was released, 2.0% yoy, -1.0% mom, both as expected, while German unemployment was also pretty much as expected at 6.9 %.
Looking ahead, the automatic budget spending cuts come into place today unless US officials can come up with a last minute deal. This does not look to be affecting the market too much at this point given that the Dow has traded today at a new 5 year high, but the markets will be keeping one eye closely on the outcome amid concerns of how the lack of any breakthrough may affect global economic growth.
Technically, the Euro has, for the time being at least, run out of steam above 1.3150 and has retreated a little in what has been a reasonably quiet session.
The indicators are mixed and it looks to me as though the current range of between 1.30/1.32 could be with us for a while. On the topside there will be sellers now at 1.3125 and at the session high of 1.3160. Beyond this Fibo resistance lies at 1.3180 (23.6% of 1.3710/1.3017) and I don’t think that we are heading too much above 1.3200, but if wrong, 1.3240 (minor) and 1.3280 (38.2%), where the top of the descending channel now lies, will see offers. The neckline of the Head/Shoulders is at 1.3300 and we have to allow a return to this, although it looks a little unlikely, but if we go above 1.3300, then the current medium term bearish view would need to be reassessed.
Today's low has been 1.3053 where the short term support now lies with further buyers likely to be seen at 1.3040 (yesterday's low), 1.3017 ( Mondays low) and then 1.3000, which 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 lower, 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.
For today look for 1.3000/1.3150 to contain it although there is plenty of data out today that may provide some volatility, with German Retail sales, the PMI's and the US CPI being the highlights. It could get a bit choppy but I don't think going anywhere too far and my preferred strategy remains to sell rallies towards 1.3200, looking for an eventual break of 1.3000 and lower. If the PMIs are weak out of Europe, the chances of any meaningful Euro rally will diminish.
Economic data highlights will include:
NBS Official, HSBC China Mfg PMI, EU/US Mfg PMI (Feb), EU Unemployment Change, US CPI, Personal Spending, ISM Mfg PMI (Feb), Reuters/Michigan Consumer Sentiment Index (Feb)
