AUD/USD: 0.9260EUR/USD: 1.3850Early US$ weakness was cancelled out by better than expected US Pending Home sales, with the main interest being in Cable, which briefly made a new 4 1/2 year high on the back of M&A talk. Focus is now turning towards tomorrows major run of data (BOJ, FOMC, EU CPI, US GDP), although before then, today sees the UK GDP, German CPI and EU/US Consumer Confidence. Japan Holiday.
The Euro having dipped to 1.3814 in Asia, headed sharply up to 1.3875 in early Europe, largely on the back of renewed buying interest in Cable, but also assisted by an expectation that the EU inflation data, due tomorrow will be firm (exp 0.8% mm – previous 0.5%), potentially delaying any possible easing of monetary policy by the ECB. Before then today’s German CPI data will give us a clue as what to expect ( exp 1.3% yy), and it will be busy later with Consumer Confidence figures due from both the EU and US as well as the Case Schiller housing data. The dollar found some support in the NY session after the better than expected Pending Home Sales, which saw a brief dip to the US session low of 1.3838.
Elsewhere, Mario Draghi was speaking and reiterated that he doesn't see a deflation scenario in the EU, adding that QE is still a way off and that he sees positive signs of growth, although the recovery remains fragile. His comments more or less underpinned the markets thoughts about a potentially stronger inflation number tomorrow.
So far today, the Euro has done pretty much as we expected in halting at the European high, where the descending trend resistance capped it, before turning a bit lower to remain within the minor converging support/resistance levels mentioned yesterday, currently at 1.3760/1.3870.
This means that a fairly neutral stance is required once again today, although the short term indicators do suggest that the Euro could break marginally higher.
If 1.3870 does give way, then we may close the Monday opening gap of 14 April to 1.3885, above which, the recent high at 1.3905 will be strong resistance. A break would lead us back towards the 13 March 1.3966 high, but which seems some way off and the indicators do not suggest any chance of a move towards 1.4000 in the near term. I cannot see a move of this sort before the US Jobs data on Friday, and it would take a very weak NFP (exp 210K) reading to send the dollar markedly lower (higher Euro) towards 1.4000.
On the downside, there will be bids at today’s low at 1.3815, and back below 1.3800 will see further good demand ahead of 1.3780. There will be plenty of stops placed below here though, which could drive the Euro towards the rising trend support at 1.3760 (also 61.8% of 1.3672/1.3905). Below here, which appears unlikely to be tested today, would head towards 1.3730 (76.4%/100 DMA) and the daily cloud base at 1.3720. A break of 1.3700 could bring a deeper decline, and apart from some minor Fibo levels, there is not too much to hold the Euro up ahead of the 200 DMA at 1.3568.
It could well be that we are just in for some more range trading until the EU CPI tomorrow, and for the time being I would use 1.38/1.39 as a guide.
Economic data highlights will include:
German Consumer Confidence, CPI, EU Business Climate, Consumer Confidence, US Consumer Confidence, Case/Schiller House Price index
Jim LanglandsFX Charts www.fxcharts.com.au
