AUD/USD: 0.9035EUR/USD: 1.3695The combination of improving EU Q4 GDP, which met expectations of 0.3% qq, with both France and Germany outperforming, and then the soft US industrial production figure, which fell by 0.8% in Jan – the biggest fall in almost 5 years – kept the pressure firmly on the dollar on Friday, pushing the Euro back above 1.3700.
While the US data stays soft, the dollar bulls are going to continue to be squeezed and with the DXY having broken some important support on Friday, it would appear that the Euro could be headed higher. We have the FOMC minutes on Wednesday, which will give the market a clearer picture on the thinking of the Fed, although it could be a relatively quiet start to the week, being a US holiday on Monday.
Technically, having been to 1.3714 on Friday, the Euro has attempted to break out of the top of the daily cloud. It is still intact – just- but a sustained move higher would see a run towards 1.3730 (61.8% of 3892/1.3476) and possibly to the 24 Jan high at 1.3738. Above that, the way would be open to 1.3775 (2 Jan high) and then to 1.3800 and beyond, towards the Dec 27 1.3892 high. Although I have been bullish on the dollar, it does look as though it is not yet the right time and that the Euro could be heading and that the shorts are likely to feel yet more pain. One thing to note though is that we are sitting right up against the base of the monthly cloud, which could continue to act as a major hurdle to further topside progress.
If wrong about the upside, and we do head lower, which the growing divergence on the 4 hour charts may be hinting at, there are plenty of bids at 1.3650 and below, although before then, Friday’s low of 1.3673 will see some buyers. If we do head back under 1.3650, which currently looks a bit unlikely, 1.3625 should provide further support, ahead of the 100 DMA at 1.3605 and the base of the daily cloud at 1.3590.
For today, use 1.3580/1.3720 as a guide, in what will probably be a quiet session in the absence of any EU data and no US market.
Economic data highlights will include:
M: Eurogroup Meeting, US holiday.
T: EU Current Account, EU/German ZEW Economic Sentiment Survey, NY Empire State Mfg Index
W: US Building Permits, Housing Starts, PPI, FOMC Minutes
T: German PPI, EU Flash Services/Composite, Mfg PMI data, US CPI, Jobless Claims, Flash Mfg PMI, Philly Fed Mfg Survey
F: EU Commission Economic Growth Forecasts, US Existing Home Sales.
