EUR/USD: 1.2860The Euro had a choppy session within a reasonably narrow range against the US$ as concerns over the future of Cyprus continue to weigh on market sentiment. Late in the day a credit ratings downgrade by Fitch has not helped ease the tension.
Elsewhere, the market has one eye on Italy, after comments from Berlusconi's party that there are still wide differences between the centre right and left parties that have yet to be overcome, which may well lead to the need for another general election. Talk of a credit downgrade if the existing impasse cannot be overcome will do little to hep the Euro recover.
Stronger US data (Durable Goods +5.7% vs expectation of 3.8%, Case Schiller Home Prices +8.1% vs exp 7.9%) helped to underpin the dollar and to keep the pressure on the Euro and there a plenty of sellers lining up to take advantage of any short term rally. The US data was not all one way though, with both Consumer Confidence and the Richmond Fed Mfg Index lower than expected.
Technically, having made a bearish outside day reversal on Monday, to take the Euro back below the 200-day MA at 1.2875, the outlook remains rather bearish, although it does not appear that in the next few hours, we are going to make much headway below Mondays 4 month low at 1.2829. The hourly charts are actually pointing a little higher and some more sideways trade looks likely with a chance of heading back towards 1.2880/90 where further sellers will queue up. If we can break above this, there is a chance of heading back to the top of the channel at 1.2950. It is difficult to see it above there, but strong resistance would again be seen in the 1.3000/10 area.
If/when the downside resumes, below 1.2830 would run towards 1.2800. Beyond this, I think we can expect some pretty choppy trade, taking us down towards 1.2680 (61.8% of 1.2042/1.3710), with mild interim support at 1.2735 and at 1.2700. The 4 hour charts appear to be running out a bit of downside momentum, so I suspect it may be advisable to wait for the odd short squeeze before attempting to set up any short position and it maybe that the 200 DMA continues to be a bit of a magnate for the Euro in the next couple of sessions as we run into thinning liquidity towards Easter.
While much of the focus will remain on Cyprus, there is a fair bit of data out today and tomorrow which will provide further direction. - Stay a bit flexible and don't get overly bearish down here - yet!
Economic data highlights will include:
EU/German Consumer Confidence, US Pending Home Sales
