EUR/USD: 1.3020The Dollar soared on Friday after the PMI's in Europe remained weak (Germany aside), while the US data showed some improvement, all of which added up to pile the pressure on the Euro. With the ECB Interest rate decision coming up on Thursday, the market is looking increasingly to the possibility of an easing from the current 0.75%, which could be the catalyst to send the Euro decisively below 1.3000. Although we have seen no change in interest rates since the June 2012 cut, the ongoing downgrades in economic growth and inflation forecasts, make a rate cut seemingly more likely and will keep the pressure on the downside.
On the other side of the pond, the US data was a bit mixed, although importantly, both the ISM Manufacturing Index and the Rts/Michigan Consumer Sentiment Index were stronger than expected and added some support to the dollar.
Looking ahead, President Obama is still attempting to avoid the stalemate with the Republicans, the "sequestration" - whatever that means! -, which initiates the automatic spending cuts and which, if there is no positive outcome would, according to the IMF, cause 0.5% to be knocked off the US growth figure this year, and would potentially have ongoing ramifications for global growth. For the time being this does not seem to be in the market's sights, but if the standoff continues, I don't see how it could be helpful to the dollar, even though some analysts suggest that it will benefit though its "safe haven status".
More immediately, aside from the ECB this week, the market will turn its focus on the Non Farm Payrolls data (exp +160K) and US employment numbers(exp Unch @ 7.9%) on Friday. At least, following Bernanke's recent reaffirmation of the policy last week, there should be less second-guessing on what the data will mean for the monthly injection of QE, which is not to say that the market will probably be any less volatile on Friday and a very strong number, would of course, question his testimony of last week.
Technically, although it finished above 1.3000, the Euro took out some important support levels on Friday, in heading to a session low of 1.2965, and the target of 1.2840 does not seem so far away, albeit that a bit more patience will be required. We traded to the bottom of the channel on Friday before the mild bounce into the close, and further downside momentum, while favoured, may remain a bit choppy if we are to stay in the channel.
Immediate resistance now lies at 1.3070 and above this at the 100 DMA at 1.3120, while the top of the channel is at 1.3285, although we are not going back here any time soon. In the short term the 4 hour charts are showing some mild bullish divergence, which should give us better levels to sell into in looking for the greater move to the downside towards the 1.2840 objective. A return towards 1.3100 would not surprise before we head lower.
The dailies, and now the weeklies, are pointing south, with the first support to be found at Friday's 1.2966 low. Below this, there is not really too much to stop it heading towards 1.2900 and then 1.2875 (50% of 1.2042/1.3710). Below this is the H/S objective at 1.2840, backed up by the 200 DMA at 1.2830 (purple line), so the support in the 1.2830/75 area is going to be strong and would suggest a good area to buy back some shorts.
Economic data highlights will include:
M: EU Group meeting, Spain Unemployment, EU Sentix Investor Sentiment Survey, EU PPI, Yellen Speech
T: EU Services PMI, Retail Sales, US ISM Non Mfg PMI.
W: EU GDP, US ADP Employment, Beige Book
T: ECB IR Decision, APP Facility, US Jobless Claims, Trade Balance,
F: German IP, US Employment, NFP, Inventories.
