AUD/USD: 0.9740EUR/USD: 1.2935The Euro is higher today following the slightly improved PMI data, with the German manufacturing figure coming in at 49 (vs 48.5 expected), while France recorded a reading of 45.5 (vs 44.8 expected) The consolidated EU manufacturing and services PMI’s improved to 47..8 and 47.5 respectively and although May is an improvement on the April figures, this is still below 50 and therefore still contracting, leaving the Euro vulnerable to further losses.
The dollar was not really helped today after Bernanke’s comments that the economy “has shown some improvement recently but still remains weak overall”. Later today we will get the US Durable Goods Orders for April which will be the main focus for the session, although before then, the German IFO and Consumer Confidence figure are both due and will drive the Euro around a bit.
Technically, the Euro has once again held the support above 1.2800, today rallying from a base of 1.2820 and into what I yesterday thought would be a good area to sell into. Today, I am not so sure that we might be a little early in selling it here, and I think a more neutral stance may be required. I suspect that the market is in the process of getting itself short, in anticipation of the head and shoulders coming into play, and that before then we may need a bit more of a squeeze higher, to clean the market out a bit, for another test of the strong resistance in the 1.2990/1.3005 area (55, 200 DMA). If this were to give way, then we may head to congestion at around 1.3030 and possibly to the descending trendline, currently at around 1.3090.
The dailies are still pointing lower though, and building a short Euro position is, I think, still the way to go. If it happens that we do top out around here (session high 1.2956), then back below 1.2900, would head back towards 1.2820, below which 1.2800 is strong (17 May low 1.2796). Under here 1.2740/70 will continue to see plenty of buyers and I don’t think we are ready for this yet. May be next week; who knows? If/when we do get there, look for further bids at the 50% projection of the decline from 1.3710/1.2744 from 1.3242 at 1.2758 and then the 1.2744 4th April low. Below this there are minor supports at 1.2685 and at 1.2660 but not too much to hold it ahead of the 61.8% projection at 1.2645.
As for today, I am still looking to sell at around 1.3000, but leaving room for a further squeeze towards 1.3100. Above 1.3240 (1 May high), I think I would be wrong but don’t think we are going that high if the head shoulders formation is to succeed in eventually taking us lower.
Economic data highlights will include:
German Consumer Confidence, GDP, IFO Business Climate, US Durable Goods
