AUD/USD: 0.9390EUR/USD: 1.3850The dollar pretty much ignored the sharp sell-off in the equities markets on Friday, with most currency pairs seemingly content to drift into the weekend in mostly narrow ranges. It will be a busy week ahead, with plenty to fit in before Easter, and the highlights will be the CPI readings from the US, EU, UK and the GDP reading from China. Today kicks-off with the EU Industrial Production, US Retail Sales and Business Inventories. Weekend comments from Mario Draghi tying EU monetary policy to the Euro's exchange rate could see it dip lower early on Monday. Liquidity will begin to thin out ahead of Friday, so we may see some exaggerated moves. Keep SL tight!
The Euro has opened lower, gapping down to 1.3830 following Mario Draghi's weekend comments - see below. It was a relatively tight range on Friday, and despite trying to run the stops above 1.3900 (high 1.3905) the Euro was unable to make further progress and chopped around heading into the weekend. Most of the focus was on the sell-off in the equity markets, which the dollar managed to largely ignore, supported in part by the better than expected PPI and Consumer Sentiment reading.
The charts are now rather mixed, but the 4 hourlies suggest that the Euro is becoming a bit overbought up here and may be due for a bit of a correction. If this is the case, look for bids, below Friday’s 1.3863 low, at 1.3850 (23.6% of 1.3672/1.3905) and then at around 1.3820 (38.2%). Below that 1.3790 is the 50% pivot of the recent run higher, which lies ahead of 1.3760 (61.8%). The rising trend support/ 100 DMA is currently at 1.3700 but which for now, looks out of reach.
On the topside the Fibo resistance at 1.3895 (76.4% of 1.3966/1.3675) will again see sellers, but beyond Fridays 1.3905 would suggest a retest of 1.3966 and eventually 1.4000, although I don’t really see it getting close in the next couple of sessions. If we do push higher, 1.4000 won’t be easy to overcome as there well be plenty of option related sellers protecting it - and the ECB would not like it either -, but if/when the Euro finds the legs to head above here, 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.
It is a heavy data week, - with today’s highlight being the US Retail Sales (exp 0.6% mm)-, and I suspect a range of 1.3850/1.3910 might cover, it with the preferred strategy of day-trading from the short side, but with a medium term view that dips are possibly a buy opportunity for a run up to see what happens at 1.4000. Given that Easter is approaching fast, liquidity is going to thin out and we could be in for some exaggerated moves heading into the weekend, so keep stops tight later in the week.
Keep an eye on the DXY (79.49). A close below 79.00 would be an early hint that the dollar is potentially heading a fair bit lower and the Euro, a fair bit higher, (see report).
Watch for an early reaction to the weekend comments from ECB President, Mario Draghi, which appeared to tie monetary policy directly to the Euro's exchange rate, which could see it dip lower at the Asian open.
Economic data highlights will include:
M: EU Industrial Production, US Retail Sales, Business Inventories
T: EU/German ZEW Economic Sentiment Survey, EU Trade Balance, US CPI, NY State Mfg Index
W: EU CPI, US Housing Starts, Building Permits, Capacity Utilisation, Industrial Production, Beige Book.
T: German PPI, EU current Account, US Jobless Claims, Philly Fed Mfg Survey
F: Good Friday.
Jim LanglandsFX Charts www.fxcharts.com.au
