AUD/USD: 0.9062EUR/USD: 1.3740The dollar headed a little higher going into the weekend, with the market cautious ahead of the FOMC meeting next week, anticipating the possibility that the Fed will announce a winding back of its current stimulus programme following last week’s budget deal. I don’t think they will do anything and that more likely it will be March/April before we see any sign of tapering, but you never know, and until next Wednesday it may be that the Euro continues to knock around close to current levels before we see some more decisive action in the 2nd half of the week. There is a fair bit of data out before then though, with the flash PMI’s German ZEW and both the EU & US CPI being highlights that are likely to drive volatility.
In Germany, over the weekend, SPD party members backed the planned coalition with Chancellor Angela Merkel’s conservatives by an overwhelming margin, paving the way for a new government to take office next week, which could underpin the Euro in early trade, although the overall focus remains on the upcoming FOMC meeting..
Technically, the 4 hour charts do suggest that the Euro could head a little lower and a break of 1.3700 would hint at a run towards 1.3688 (23.6% of 1.3294/1.3810). Should this fail to hold its ground, then 1.3675 will provide minor support, below which we would head back towards 1.3650 and potentially to Fridays spike low at 1.3617, where the next Fibo support also lies (38.2% of 1.3294/1.3810).
The dailies also look as though they could be rolling over but have yet to pick up any real momentum on the downside, and overall the Euro remains pretty resilient, so at this stage I would not be getting too carried away with any major move south, and I suspect it will remain fairly choppy early in the week, but with a short term downside bias.
If it manages to hold on above 1.3700, then look for a run back towards last Fridays high at around 1.3770, above which would probably see a return to 1.3800. Above that has proved tricky for the Euro and this will remain the case. I would be doubtful of seeing it much above 1.3800 until Wednesday but if the Fed fail to act, then expect the major 1.3830 resistance (25 Oct high/ (61.8% of 1.4940/1.2042) to be taken out in a hurry, triggering the stops above there and heading on towards 1.3858 (Nov 2011 high), beyond which, the way appears open towards 1.4000, with not too much standing in between.
For Monday, use 1.3670/1.3770 as a guide, without looking for anything too directional.
Economic data highlights will include:
M: EU Flash Mfg/Services/Composite PMI’s, EU Trade Surplus, US Flash Mfg PMI, Capacity Utilization, Industrial Production, Mario Draghi Speech
T: EU CPI, German ZEW, US CPI
W: German IFO Business Climate, US Mortgage Applications, Building Permits, Housing Starts, FOMC I/R Decision +MP Statement
T: EU Council Meeting, Current Account, US Existing Home Sales, Jobless Claims
F: German/EU Consumer Confidence, PPI, US GDP
