AUD/USD: 0.9270EUR/USD: 1.3775Weaker than expected EU CPI pressured the Euro ahead of Thursdays ECB meeting, before a bounce, as shorts covered. Once NY got in, some dovish comments from Janet Yellen put the pressure back on the dollar and sent equities higher. It will be a busy session ahead, with the global PMI's due out with Australia , China and the Japanese Tankan kicking things off in Asia and will be followed by the RBA I/R decision. Later in the day, German/EU Unemployment, EU Mfg PMI, US ISM Manufacturing PMI and Construction Spending are all due for release. Look like being a busy one...
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The Euro survived the weaker inflation reading after the EU CPI came in below expectations at just 0.5% yy. After dipping to the session low of 1.3721 on the release of the news, it bounced back to 1.3800, and after some choppy trade it again rebounded after some dovish comments from US Fed Chair Janet Yellen put the dollar under some pressure of its own.
The dollar jumped up to a high of 1.3808 after she said that US monetary policy will remain accommodative for some time to come due to the ongoing slack in the economy, and that there is still a need to provide support to assist the labor market. Since her comments, the dollar has made a minor recovery and currently sits close to where it started the week, currently at 1.3775.
More of the same choppy trade looks likely for the coming session with the Euro capped on the topside by the possibility that the ECB could ease rates on Thursday, with this view given added credence after today’s low CPI reading although the dollar is going to have trouble making any gains of its own given the dovish outlook for US monetary policy. The general consensus is that despite the weak data recently, the ECB will stay on hold.
Another day of 1.37/1.38 looks possible, although the 4 hour charts are looking as though we could yet get another test of the topside. We have the manufacturing PMI’s coming up today, as well as the German Unemployment data, and it will need an improvement here if we are to see the Euro take out 1.3800. Later on will see the US ISM Manufacturing data and Construction Spending, and I suspect that overall we are in for another day largely contained within 1.37/1.38, possibly a little bit higher, but mostly rangebound ahead of the ECB rate decision on Thursday.
The dailies point lower though, so it it could be that we do have another test of the downside, and back below the session low of 1.3721 will see some decent bids at 1.3700. Below here, the points to watch will be at the top of the daily cloud at 1.3680, the 100 DMA (1.3675) and then the 61.8% Fibo support at 1.3660, which is also where the rising trend support now lies. A break of this looks unlikely in the near term, but if wrong, then the 27 Feb low at 1.3643 will come into view ahead of the 76.4% Fibo support at 1.3595.
On the topside, the 200 HMA is at 1.3792 and then there is strong resistance at close to today’s session high of 1.3808 (1.3803: Daily Kijun, 38.2% of 1.3966/1.3704). A break of this area will see sellers at 1.3820 (Daily Tenkan) ahead of 1.3833 (50% pivot of 1.3966/1.3704). A break of this would see a move on towards 1.3865 (61.8%) and the recent spike high at 1.3875. I cannot really see this being tested again for a while, but beyond there would head towards the minor trend resistance at 1.3900, above which would suggest a retest of 1.3966 and eventually 1.4000. If we ever get there, this area won’t be easy to overcome 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.
Look for 1.3720/1.3820 to cover it, but generally it appears that 1.37/1.38 looks likely to hold it, possibly until Thursday.
Economic data highlights will include:
German/EU Unemployment, EU Mfg PMI, US ISM Mfg PMI, Construction Spending
Jim LanglandsFX Charts www.fxcharts.com.au
