EUR/USD: 1.2960The US retail Sales rose by 1.1% in February, a 7 month high and helped the US$ make good gains against most currencies, pushing the Euro back below 1.3000, to a session low of 1.2922 before a partial recovery.
A weak Italian bond auction (€2bn 15-year bonds @ yield of 4.9%, €3.32bn 3-years @ 2.48%) and inflammatory comments from Italy’s Beppe Grillo that Italy is 'de facto' already out of the Euro, and that northern European countries are waiting to drop Italy "like a hot potato" did little to assist the Euro before NY arrived. Elsewhere, EU Industrial production fell by 0.4% in January compared with December, more than the 0.1% fall expected.
It looks to me as though the dollar still has plenty of room on the upside and for those who read the weekend outlook, the index has today broken through 83.00 to register a 7 month high at 83.00 and is looking likely to head to 83.50, ahead of the previous major top at 84.10 (24 July).
Nearer home, looking ahead to today, it is going to be a busy one, but with regards to the Eur/Usd pairing, most of the data will be secondary. The headline figures will come from the EU employment change and then from the US we get the Jobless Claims and the PPI.
From a technical perspective, the channel still provides the best guide, as the Euro edges slowly lower, and the parameters here are now at 1.2760/1.3076. We are unlikely to see either of these today, although the Euro, having initially testing the sellers in the 1.3050/65 area that we mentioned yesterday, finally gave up the ghost and headed lower to ensure that the topside of the channel was not put under too much pressure.
Having now taken out the previous 1.2955 support, today's lows will now form a short term base. Beyond there, buyers will be seen at 1.2915 (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. As I have said on previous occasions, this support in the 1.2840/75 area is going to be very strong and would suggest a good area to buy back some shorts.
On the topside, back above 1.3000 will now see strong sellers between 1.3065/75. I don't think we are likely t see this today, but if wrong, a break would head up to 1.3105 (23.6% of 1.3710/1.2922).
The momentum indicators are a little undecided, although the 4 hourlies are pointing a little lower. I think the price action could remain a bit choppy within the 1.2900/1.3000 area but would continue to use rallies as an opportunity for the next leg lower to sub 1.2900.
Economic data highlights will include:
ECB Monthly Report, Employment Change, US Jobless Claims, PPI
