AUD/USD: 0.9345EUR/USD: 1.3930The dollar has been under pressure ever since the European open when the generally improved EU Services PMI's and stronger Retail Sales sparked a rally in the Euro. Some important levels are approaching, particularly in the Euro, Cable, Swiss and Kiwi, which if broken, could bring about some sizeable moves in the days ahead. Today looks like being fairly range-bound though as the market awaits the week's key risk events, these being Janet Yellen's testimony to Congress (later today) and the ECB/BOE meetings (tomorrow). The situation in the Ukraine is also keeping traders on their toes, which looks likely to underpin Gold, in particular.
Finally, some action! The better than expected Spanish (56.5 v exp 54.4) and Italian (51.1 v exp 50.4) Services PMI data kicked off the squeeze higher in the Euro, which was then helped on its way by the improving EU Retail Sales (+0.3% v exp -0.2%) and a general sell off in the dollar that saw the DXY break some key support, enabling the Euro to rally to a session high of 1.3950.
The momentum indicators do appear to be building for a stronger run up in the Euro, although ahead of Thursday’s ECB meeting, traders may be nervous of taking it too high in case the Bank decides to ease rates, despite the general view that it will be June before they decide to act. If the ECB do nothing, I think we can probably expect to see a quick run up to test 1.4000 and would most likely take out the stops placed above there. Ahead of the ECB announcement, Janet Yellen will be testifying to Congress today and should she be overly dovish, the dollar is going to come under further pressure. Before Yellen's testimony, late in the coming session, and possibly ahead of the ECB meeting on Thursday, the action looks likely to be rather limited.
Technically, with the Euro approaching the important technical resistance at 1.4000 there appears to be 2 possibilities. If 1.4000 holds, (which as we have said previously, it could well do), this being the resistance in terms of the large wedge formation (see weekly chart below), then we will see a return to lower levels where the initial wedge support is at 1.3810, a break of which could eventually see a run all the way down to 1.3400 (blue support line). If 1.4000 does give way, then as we have said before there is not an awful lot of nearby resistance and could potentially bring about a run towards 1.4240.
The daily indicators in the DXY are pointing increasingly lower, suggesting further dollar weakness, but still hang on above 79.00. A break of this would suggest a deeper decline towards 78.60 and potentially 78.10 (see chart below.)
For today, look for 1.3900/95 to cover it.
Economic data highlights will include:
German Factory orders, Consumer Credit, Yellen testimony to Congress
Jim LanglandsFX Charts www.fxcharts.com.au
