EUR/USD: 1.2990The NFP surprised on the topside, coming in, as it did at +236K, with the US unemployment rate falling to 7.7%, a 5 year low and has further enhanced the story that the US may finally be climbing out of the doldrums, initiating gains on all fronts for the Dollar on Friday. At the same time, Fitch downgraded Italy from A- to BBB+ and helped keep the Euro under pressure, erasing Draghi's upbeat outlook for the EU economy, the day before. The downgrade happened after the European close and could have a negative effect in Asia/early Europe on Monday morning.
Technically, we have now made a new low in the current decline, this time at 1.2955, before a bit of a bounce to close at 1.3005, only 15 pips below that of the previous week. In the short term the squeeze up from Friday's low may be a bit of a worry for the late-coming bears, and given the short term bullish divergence we could yet squeeze a little higher towards the recent 1.3070 pivot where there should be some decent sellers. Beyond that could take us back above 1.3100 and towards Friday's high at 1.3138 (1.3140 was 23.6% of 1.3710/1.2966 - before the break to the new lows), although I think this is doubtful to be seen today.
Further out the weeklies continue to point south and although I can see that we may have a session or two at near to current levels, eventually the downside should resume and back below 1.2955 would lean towards 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 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. The base of the descending channel is now at 1.2815 and I would be doubtful of seeing that in the next few days.
Overall, a choppy day looks likely today with only some German data to go on and I think the market may want to spend some time finding its feet following Friday's sell-off. By the look of the DXY though (see later article), we have further dollar strength to come, and overall, rallies in the Euro continue to look like opportunities to get prepared for an eventual test of 1.2850 or thereabouts. Given the price action that we have seen since the break of the neckline of the Head/Shoulders, at around 1.3300, expect the downward pressure to continue to be choppy, which should ensure further selling opportunities along the way.
Economic data highlights will include:
M: German C/A, Trade Balance
T: German CPI, US Business Inventories, Monthly Budget Statement.
W: EU Industrial Production, US Retail Sales
T: ECB Monthly Report, US Jobless Claims
F:EU Council meeting, EU CPI, US CPI, NY State Mfg Index, Industrial Production, Rts/Michigan Consumer Sentiment Index.
