AUD/USD: 0.8780EUR/USD: 1.3540The Euro finally broke away from the rising trend support on Friday, heading lower as the dollar made good gains, - to a seven week high in NY, - after a round of mixed U.S. data underpinned the view that the economy is steadily gaining steam and should see the Feds tapering programme continue, as was alluded to by various Fed board members throughout the week, with the previous weeks dreadful NFP being a one-off anomaly.
One concern to the bullish dollar scenario is that bond yields have yet to recover from their recent sell-off and the 10 years remain at 2.83%. I would prefer to see them head back towards 3% as the data / sentiment continues to improve in order to underpin and encourage future dollar strength.
Q4 U.S. industrial output rose for the 5th consecutive month and at its fastest rate in 3-1/2 years, although on the other side of the coin, housing starts were weaker than expected which was put down to the inclement weather in the US, while the University of Michigan consumer sentiment index fell to 80.4 in January from 82.5 in December, (exp 83.5).
Rumours of a German sovereign downgrade and a profit warning at Deutsche Bank did nothing to help the cause of the Euro, nor did the rise in demand for Sterling, as the cross headed lower following another strong UK data release.
The coming week should be a quiet start given the US holiday, as well as the economic forum junket in Davos, and it could be a fairly range bound week given the lack of any major data, with the German PPI being Monday's highlight, although the China data release, headlined by the GDP, will be in focus. Thursday will be a busy one, with the release of the monthly global PMI data and ahead of that on Tuesday we get the January German ZEW survey, which is expected to show the highest reading (63.0) since March 2006 (63.4).
Technically, the Euro finished the week below both the 100 DMA (for the first time in 4 months) and also below the base of the daily cloud, which should be significant and should bring lower levels ahead I suspect, although we are currently sitting on good support at 1.3525 (61.8% of 1.3294/1.3892) which could hold it up for a while.
The indicators are generally pointing lower and a test of 1.3500 may not be too far away. Below here would see a run towards 1.3455 (23.6% of 1.2042/1.3892 & 38.2% of 1.2755/1.3892) beyond which, 1.3435 (76.4% of 1.3294/1.3892) will attract.
A return to the topside will now find sellers at 1.3560 (100 DMA/Daily Cloud Base) and above there at 1.3580 which provided a base for the last couple of days trade. Above 1.3600 would then head towards 1.3615 (Daily Cloud Top), 1.3630 and 1.3650. I can’t really see it getting close, but we may see the odd spike higher, and if so, I think would provide a selling opportunity.
Economic data highlights will include:
M: German PPI, US Holiday - ML King Birthday.
T: EU/German ZEW Economic Sentiment Survey
W: World Economic Forum – Davos,
T: World Economic Forum - Davos,
EU Flash Mfg, Services, Composite PMI’s, EU Curr/Acc, US Jobless Claims, Personal Consumption Expenditure, Flash Mfg PMI, Existing Home Sales
F: World Economic Forum - Davos
