EUR/USD: 1.2910NB Monday Open: The Euro has opened up sharply lower at 1.2910 following the Cyprus bailout deal. Tread carefully, there is now a big gap on the charts.
The Euro recovered from Thursdays 3 month low of 1.2910 on Friday, easing back as traders squared up ahead of this week's FOMC meeting, where no real change is expected to the QE programme, although an updated outlook on economic growth will be released by the Fed. Prior to the FOMC, it looks as though there will be limited dollar gains, despite the bigger picture showing an economy that continues to improve, albeit ever so slowly. The Rts/Michigan Consumer Sentiment Survey put a bit of a dent in optimism on Friday, coming in at 71.8 (expt'd 77.6) the lowest since Nov 2011.
In Europe, the EU Council Meeting has been attempting to walk the fine line between growth and austerity and to hammer out a bailout deal for Cyprus. This has now been finalised to the tune of Eur 10 bio, and much to the shock/horror of Cypriots, they have been hit with a 10% one-off levy on all bank savings, to help pay for it. Up to 50 % of savings in Cypriot bank accounts - according to the press - is Russian money, so this is not going to go down all that well! Other EU nations in need of a bailout will be watching nervously and it could mean that the Euro opens with a gap lower on Monday morning.
In other news, the ECB also announced on Friday that 20 banks will repay EUR 6.82bio of 3 year LTRO loans this week which now adds up to total repayments of EUR 235.bio, 23% of total loans.
Looking ahead, although the main event of the coming week will be the FOMC, there is plenty of other data to keep the market alert, with the ZEW, PMI and IFO figures all likely to be keenly watched.
Technically, as we thought might be the case on Friday, the Euro had legs and eventually took out the top of the recent channel, to spike up to the Fibo resistance at 1.3100 (high 1.3106), before retreating a bit lower, but finishing the session with good gains.
The 4 hour indicators suggest that we may see mild further gains on Monday, and although the dailies are not really telling us too much yet, it maybe that they can pick up some momentum to carry us beyond Fridays high and on towards 1.3165 and possibly to 1.3200. The 100 DMA lies at 1.3118, and so any Euro gains are not going to be easily accomplished with plenty of sellers likely to be found in the 1.3100/20 area, early in the week. If we can carry on higher though, above 1.3200, there is not too much resistance to be seen ahead of 1.3297, where the Head/Shoulder neckline should provide plenty of sellers - that is unlikely to be seen early in the week, but worth keeping an eye on as it may well provide a good selling opportunity for the next leg lower.
The downside looks a little limited right now and bids at 1.3050 could well hold it on Monday. If wrong, there will be some stops below here which may drive it down towards 1.3000. I would be surprised to see it below here in the short term, but further out, the Euro should look to retest last week's 1.2910 (1.2915 =76.4% Fibo support of 1.2660/1.3710) before it runs into good support in the 1.2840-75 area. Should the PMIs come in soft again & the Fed hint at an early end to QE, the Eurs focus will turn south again putting the 1.2870/80 support in play
In the medium term we still have plenty of support lined up in the 1.2840/75 area. 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
Economic data highlights will include:
M: EU Trade Balance,
T: German, EU ZEW Survey, US Housing Starts, Building Permits.
W: German PPI, EU C/Acc, EU Flash Consumer Confidence, Fed I/R Decision
T: EU Flash Mfg/Services PMI's, US Flash Mfg PMI, Existing Home Sales, Phil Fed Mfg Survey
F: German IFO.
