AUD/USD: 0.8950EUR/USD: 1.3765The Euro is currently pretty much unchanged against the dollar having earlier climbed to 1.3798 after EU PMI manufacturing data improved to 52.7 in December (exp 51.9). The data was otherwise somewhat mixed and the positive momentum was not maintained as traders remain cautious ahead of Wednesdays FOMC meeting. The EU services PMI dropped to 51 (exp 51.5), while German PMI manufacturing rose more than expected to 54.2. The French data was disappointing with the manufacturing PMI falling to 47.1 while the services number fell to 47.4 against an expectation of 48.7.
Further upside for the Euro was tempered somewhat after ECB President Mario Draghi, speaking before the European Parliament on Monday, pointed out the EU economy's downside risk, and repeated that interest rates will stay low, if not lower, for the foreseeable future.
Looking ahead, I don’t think we should expect too much action today and the 4 hour charts hint that we could have another day of range trade between 1.37/1.38. We do get some important data though that could move things around, with both the EU and US inflation data and also the German ZEW Economic Sentiment report due to be released.
From a technical point of view, nothing has really changed and I would maintain a fairly neutral stance for the coming session.
Below today’s 1.3727 low, 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).
Should 1.3700 support remain intact, which currently seems likely, we could see another run back to today’s high, just shy of 1.3800. As we said previously, above 1.3800 has proved tricky for the Euro and this will probably be the case again today, should it be tested. 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 large 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.
Overall look for another day of 1.37/1.38, with the short term charts pointing mildly to a test of the downside.
Economic data highlights will include:
EU CPI, German ZEW, US CPI
