AUD/USD: 0.9760EUR/USD: 1.3070 It was a big start to the week after the generally improved European Manufacturing PMI's helped the Euro higher early on and probably ensures that the ECB will remain on hold on Thursday. Later on, after a brief spike down to 1.2955 at the NY open, the US ISM shook the market up in heading back below 50, to 49.0, turning the dollar sharply around in the process and pushed the Euro to as high as 1.3107. The EU readings, although better than expected, are all still below 50, and therefore continue to indicate economic contraction as well, so, while the Euro has had a positive session, I don't think we should become too excited on the topside and more range trade within the broad 1.28/1.32 area looks likely for some time to come with the view that the US $ will eventually return to favour. The EU PMI readings for May were: EZ 48.3 v exp 47.8, Germany 49.4 v exp 49.0, France 46.4 v exp 45.5, Italy 47.3 v exp 46.2, Spain 48.1 v exp 44.7.
The market has obviously got itself far too long of dollars and today's move has seen a bit of a clean-out. Today's data will be a little thin on the ground and thus it may be a session for some consolidation to regain some balance, not too far removed from 1.3100. The 4 hour charts though are showing that the Euro retains some positive momentum, and having broken the down trending resistance from the 1.3710 Feb high, it has so far made it to the 1.3107 Fibo resistance (38.2% of 1.3710/1.2742). This won't be easy to overcome, being backed up by the 100 DMA at 1.3115, but if we do head higher, look for a run towards minor resistance in the area between 1.3175/90. Above 1.3200 we could test 1.3242 (1 May high), above which, as I have previously said, I would start to become a little nervous of the medium term Euro bearish view. Until then we remain with it.
On the downside, back below 1.3060, - right here- would be the first sign of a possible failure on the topside. There is minor Fibo support at 1.3030 and the 200 DMA is now support at 1.3020, but if this gives way, I suspect we would head back to/below 1.3000. Given the dearth of data today, I doubt that we are going to return here in the short term, but if we do head below here, the 55 DMA is at 1.2975. Below this would head to 1.2940 (minor) and then at 1.2900. Back below here would see another attempt at the strong 1.2820 and a break would head towards 1.2800 (17 May low@ 1.2796). Under this, 1.2740/70 will continue to see plenty of buyers and I don’t think we are ready for it yet. 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 at 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.
A choppy session between 1.3030/1.3130 looks likely and while I do suspect the short term momentum is heading higher, I will be looking to build a short position once we get back above 1.3100 for the eventual expected return lower.
Economic data highlights will include:
EU PPI, US Trade Balance
