AUD/USD: 0.8980EUR/USD: 1.3740The Dollar finished the week generally mixed, but lower against the Euro after US Home Sales dropped 5.1% to the lowest level since July 2012, continuing the run of soft US data and underlining the view that the Fed will taper its monthly bond-buying program at a very gradual pace. The Euro was supported by purchases of Eur/Jpy on Friday and could have climbed higher against the dollar, but was held back by the perception that the recent soft US data is weather related and will therefore improve which should then come to the assistance of the dollar. Concern over the situation in the Ukraine also weighed against the Euro, although the tensions there seem to have eased somewhat over the weekend.
The week ahead will see a fair bit of data, including some regional US Fed manufacturing reports which will be closely monitored, starting today, with a release from both Chicago and Dallas, and before that we get the German IFO and EU CPI numbers. Any sign of a move towards a deflationary cycle would quickly turn the mood rather sour for the Euro as the possibility of another easing by the ECB again comes to the fore.
The market will also pay close attention to what Fed Chair Janet Yellen has to say in her testimony to the US Senate on Thursday with regards to the pace of the tapering programme - which is likely to continue at its current pace -, and also for any hints as to whether she puts a time frame for an eventual hike in the Fed Funds rate. The coming week will also see plenty of other Fed board members speaking, promoting their own views on tapering, and could cause the odd spike in either direction.
Moody’s upgrade of Spanish Government Bonds after the NY close on Friday, assigning a positive outlook, will probably help to underpin the Euro in early Monday trade.
Technically there is little change at the start of the week, given the relatively tight 55 point range on Friday.
Having held above 1.3700, the Euro easily avoided retesting the strong support at Thursday's low at 1.3685 (50% pivot of 1.3476/1.3772). This area would continue to attract decent buyers, with the 200 HMA at 1.3683, the weekly tenkan at 1.3680, the top of the daily cloud/daily tenkan at 1.3670 and Fibo support at 1.3660 (38.2% of 1.3476/1.3772) all likely to underpin any Euro weakness. I don’t really see it down here in the coming session, but if wrong, look for an acceleration towards 1.3625(daily Kijun/50% of 1.3476/1.3773).
The indicators actually appear to hint of another test of the topside, where 1.3772 has recently capped it. Above there would head towards 1.3800 and then to the major descending trend resistance at 1.3830 (also 61.8% of 1.4939/1.2042), a break of which would be fairly pivotal for the Euro, as I suspect we would then be headed towards 1.3892, (Dec high) and then possibly on to 1.4000 although this is still some way off. A break of the trend resistance would also involve breaking important long term support in the Dollar Index (see DXY report), which would be rather ominous for the dollar’s medium term outlook, and not just against the Euro.
Until then, look for more choppy trade with 1.3700/1.3770 likely to cover it today, with half a chance of heading towards 1.3800, although a weak EU inflation reading (exp -0.4% mm, +0.7% yy) would quickly negate that idea.
Economic highlights will include:
M: German IFO Business Climate/Expectations, EU CPI, US Services PMI, Chicago Fed Activity Index, Dallas Mfg Index.
T: German GDP, US Consumer Confidence, Case/Schiller House Price Index, Richmond Fed Mfg Index
W: German Consumer Confidence, US New Home sales
T: German Unemployment, CPI, US Durable Goods Orders, Jobless Claims, Kansas Fed Mfg Index, Janet Yellen Fed testimony to US Senate.
F: German Retail Sales, US GDP, Personal Consumption/Expenditure.
Jim LanglandsFX Charts PL
