EUR/USD: 1.3100After the Algo's set off the stops at 5.00pm NY time yesterday, the Euro recovered from the 1.2965 low going into early Europe. Having ignored the poor German factory orders, and once the ECB left rate unchanged with Draghi giving no sign of any easing in the future, it accelerated and eventually made a session high of 1.3115, since when it has more or less maintained its gains, currently trading near 1.3100. Draghi had been expected to lower the inflation and growth forecasts, but did not, and ensured that the Euro was going to remain well bid on any dips.
Further support for the Euro today came in the form of the sold Spanish bond auction which saw sales EUR 5.03bio, meeting it's maximum target, at a yield of 4.917% for the 10 years - the lowest since November 2010.
The market now awaits today's NFP (exp+160k) and US unemployment numbers (exp unch @7.9%). Following the positive ADP number of Wednesday and the better than expected Jobless claims today (340K) it would not surprise to see a better than expected figure which would once again give rise to the possibility of a withdrawal of the monthly QE injection, despite Bernanke's testimony last week, and would probably see a return of funds back into the US$ and send the Euro lower. As ever, with the NFP though, it is going to be volatile.
In the meantime, having taken out 1.3100, the Euro has so far come to a grinding halt at the 100 DMA, currently at 1.3118. A break of this would take us to 1.3140 (23.6% of 1.3710/1.2966), and possibly to the top of the channel, currently at 1.3180. The 4 hour momentum indicators certainly suggest that this is the direction we need to look at today and if we can break above the channel, it would suggest that a medium term bottom has been put into place, with a chance of eventually heading towards 1.3200. The hourlies are becoming overbought though, and thus, if we do head higher, it may be a choppy process but they should have a chance to unwind a little over the next few hours with little likely to happen in Asia/early Europe.
If on the other hand, the Euro turns lower, there will be plenty of bids as we approach 1.3070 and then 1.3000 with more bids at 1.2965. I would doubt that we are going below this today, but if wrong, the next target will be 1.2915, the 76.4% Fibo support of 1.2660/1.3710. If we trade below this, 1.2875 (50% of 1.2042/1.3710) lies ahead of the channel base at 1.2860 and then the H/S objective at 1.2840, which in turn, is backed up by the 200 DMA at 1.2838, so the support in the 1.2840/75 area is going to be strong and would suggest a good area to buy back some shorts.
On balance, the Euro looks to me as though it has the chance of further gains ahead of it today and dips look to be buying opportunities, and thus I suspect that if we see 1.3050-70 again, it might be a short term base ahead of later gains towards 1.3200. Stay flexible though.
Today sees
F: German IP, US Employment, NFP, Inventories.
