AUD/USD: 0.9120EUR/USD: 1.3010Month end dollar demand and some Fed comments were the main theme on Friday, and after the Euro had made some early gains to 1.3102, taking out some weak stops above 1.3080, dollar buyers stepped in, pushing the Euro sharply lower once again to 1.3000, where it finished just above the session lows of 1.2990 (Daily cloud support). Aside from month end position squaring, the Feds Jeremy Stein put a bid under the dollar when he suggested that QE tapering could begin as early as the September meeting.
The week ahead looks as though the Euro is likely to remain heavy as we approach the ECB rate decision (no change expected) with Mario Draghi's press conference to be the focus on Thursday. The dovish comments last week from Draghi, backed up on Friday by comments from one of Angel Merkel''s economic advisers, suggesting that EU rates could remain "low for years", do not paint a very optimistic picture for the EU, and I would be surprised to see any material gains for the Euro in the coming week. The European economy is not alone though in looking soft, and following the July 4 holiday on Thursday we get the US Unemployment/NFP (exp +165K) data on Friday, which will give us a further clues as to the timing of any tapering (or not) and whether Jeremy Stein's comments look likely to turn out to be correct.
Croatia joins the EU today. With 20% unemployment and the economy in recession, they should fit in very well! Another bailout contender.
Technically, there is not too much change at the end of Fridays trade, although the weak finish probably means a test of the downside, below 1.3000, at some stage on Monday.
Below last Wednesday's 1.2985 low, would suggest a run down to 1.2940 (76.4% 1.2796/1.3415) and then 1.2900, ahead of 50% Fibo support of 1.2042/ 1.3710 at 1.2876 and weekly cloud support at 1.2840. Below here 1.2796 comes into play and should be strong support having been the 17 May low and the neckline of the Head/Shoulder formation that we have been watching for the last few months. A break of this at anytime could be a pretty dire proposition for the Euro, although too early yet to anticipate it. Suffice to say, the target would be somewhere around 1.17/1.18.
Having closed the week below the previous 61.8 % Fibo support of the rally from 1.2796/1.3415 at 1.3030, this will now act as the first resistance. Back above there would see 1.3080 and possibly 1.3100 again. Above that, although a little unlikely on Monday, would head towards 1.3147 (38.2% of 1.3415/1.2985) and then possibly 1.3200 (50%), although this looks unlikely.
As with last week, selling rallies to 1.3100/50 remains the strategy, although we may be lucky to see it. Stops should be placed tight above 1.3150. There is a fair mix of data out today though and if the EU PMI's improve, we could get a short squeeze.
Economic data highlights will include:
M: EU Mfg PMI data, EU CPI, Unemployment, US Mfg PMI, ISM Mfg PMI, US Construction Spending
T: EU PPI, US Factory Orders, Total Vehicle Sales
W: EU Services, Composite PMI data , EU Retail Sales, US ADP Employment Change, Jobless Claims, Retail Sales, ISM Non-Mfg PMI
T: US Independence Day, EU GDP, ECB I/R Decision, / Press Conference
F: German Factory Orders, US Unemployment/NFP
