AUD/USD: 0.9010EUR/USD: 1.3910The market finished the week on a nervous note ahead of the weekend referendum in Crimea. The vote is about 93% in favour of joining Russia, but in early trade, most markets seem to be taking it in their stride and risk assets are currently holding their ground. Looking ahead aside from political headlines, the main focus will this week be on the FOMC and Janet Yellen’s update on Wednesday, which will also see some action in Cable after the BOE minutes, Jobs data and the UK Budget. Today sees the EU CPI and US NY Empire State Manufacturing Index, US Capacity Utilization and Industrial Production. Watch the China Fix today, following the weekend band widening, and of course the action in Crimea.
The Euro finished the week back above 1.3900 despite the concerns ahead of the weekend referendum in the Crimea over whether or not to split with the Ukraine and to tie its future to Russia. Tensions were eased somewhat on Friday after the Russian foreign minister said that Moscow had no plans to invade Eastern Ukraine and that the referendum result would be respected. Early in the week this is going to be where the focus lies and will drive the Euro (as well as the emerging/risk associated markets) but with sanctions looming, it does not look likely to be a particularly positive outcome for any party.
The economic highlight of the week will be the US Fed I/R decision and Janet Yellen’s Press Conference, complete with updated forecasts. Tapering is expected to continue and should cause little shock, although the market is going to increasingly try and guess when the Fed are likely to pull the trigger on the first rate hike in the cycle. Don’t get too excited on this yet!
From a technical point of view it looks as though the dollar is under pressure on most fronts and that the Euro is capable of making further gains in the days ahead, although the 4 hour charts are showing some growing bearish divergence and so it is not going to be an easy ride. However both the dailies and weeklies have some positive momentum and thus if it can find the strength to overcome last week’s 1.3966 high, then we should make a fairly quick attempt to take out 1.4000. This won’t be easy as there well be plenty of option related sellers protecting it, but if/when the Euro finds the legs to head above it, there is not a lot to stop it heading on to the next major Fibo resistance at 1.4240 (76.4% of 1.4940/1.2041) which was also the Oct 2011 high.
Given that we have finished just 25 points above the previous week’s close, the downside supports are pretty much the same. Initial, minor support will be at 1.3880 (100 HMA) ahead of Friday’s low at 1.3847 (1.3850: 23.6% of 1.3475/1.3966, 200 HMA). Below that, the break out level at 1.3830 will then see bids (daily tankan; 1.3835), although the descending trend resistance line is now at 1.3810. Below 1.3800, 1.3780 (38.2% of 1.3475/1.3966), 1.3760 (daily kijun) and then 1.3720 (50% pivot of 1.3475/1.3966) will see buyers ahead of 1.3700, which currently looks out of reach.
Keep one eye on the DXY (see report), which looks particularly sick and could well be a warning that 1.4000+ does lie ahead for the Euro, although this is a little hard to compute given that the sanctions that seem likely to be about to be handed to Russia would probably bring about retaliatory action, like turning off the gas pipelines to Europe. Hardly a positive for the Euro.Stay nimble!
For Monday look for 1.3850/1.3950 to cover it, but keep an eye on the headlines.
Economic data highlights will include:
M: EU CPI, US NY Empire State Manufacturing Index (Mar), US Capacity Utilization (Feb), Industrial Production (MoM) (Feb), BUBA’s Weidmann speech.
T: ZEW Survey – Economic Sentiment (Mar), Current Situation (Mar), Consumer Price Index (YoY) (Feb), Building Permits (MoM) (Feb), Housing Starts (MoM) (Feb)
W: Fed Interest Rate Decision
T: European Council meeting, German Producer Price Index (MoM) (Feb), US Philadelphia Fed Manufacturing Survey (Feb), Existing Home Sales (MoM) (Feb), Bank Stress Test Info
F: Consumer Confidence (Mar)Preliminary.
Jim LanglandsFX Charts www.fxcharts.com.au
