EUR/USD: 1.2775The euro fell again today, to a low against the US$ of 1.2750 so far, weighed down by a weak Italian bond auction that saw Italy pay the highest yield in 6 months for 5 year funds and the ongoing concerns over the situation in Cyprus. The lack of any progress on the political deadlock following the recent Italian election is also doing little to help and as long as this lasts, ensures that the upside for the Euro remains pretty limited. The leader of the centre-left party is due to report to the President later today on the outcome of talks with other parties about forming a government. Don't hold your breath for a positive outcome.
In Cyprus, it would appear that the banks are going to re-open today, which could mean another nervous session for the Euro. The market has been worried of a huge flight of capital once they do re-open and all sorts of limitations and capital controls have been put in place to stop this from happening, but the fear of contagion to other peripheral EU nations such as Spain and Italy is going to ensure that the downside for the Euro remains extremely vulnerable.
Technically, we are making our way towards the 1.2680 target (61.8% of 1.2042/ 1.3710 & base of the weekly Kumo cloud) which should act as very strong support. Before then, 1.2735 and 1.2700 will provide minor support, but the momentum indicators are pointing lower and eventually these should give way. If we head below 1.2680, the next point to watch should be at 1.2630 and 1.2600, both minor supports, ahead of the base of the channel, currently at 1.2590.
It is difficult to find a reason to buy the Euro right now, except perhaps the sheer weight of shorts looking to cover, producing a rally, but if it can find some legs, resistance will be seen at 1.2800 (minor) and then at around 1.2850 where we spent much of the previous session. Beyond there, the top of the channel is at 1.2915, although it is difficult to see this being seen any time soon.
The hourly charts are showing some minor bullish divergence and thus if we do get the odd squeeze to 1.2800+, it would appear that they are further selling opportunities for another test of the downside.
Aside from Cyprus, direction today will be driven by the German Unemployment data and then the US GDP. Liquidity will begin to dry up and I would be square before the close of play, and then take another look after the holiday.
The next outlook will be on Tuesday. Have a good Easter.
Economic data highlights will include:
German Unemployment, Retail Sales, US GDP, Chicago PMI, Personal Consumption Expenditure.
