AUD/USD: 0.9330EUR/USD: 1.3910Janet Yellen's dovish outlook on the US economy, stating that easy monetary policy will remain in place for the foreseeable future, saw the equity markets rally but had little effect on the currency markets whose attention is now focused on today's ECB/BOE interest rate decisions. Before then, the Australian Jobs and Chinese Trade data will be the highlights in the Asian session. Gold is lower on easing Ukraine tension, while Oil is up on lower US inventories.
After the usual very quiet session in Asia, the Euro was not helped once the European session got going by the release of the very weak German (March m/m -2.8% v +0.3% exp) and French (March m/m -0.7% vs +0.2% exp) industrial data. The US$ was assisted somewhat by news that tensions had reduced in the Ukraine, after Putin did a bit of a U-turn and made some effort to diffuse the crisis, easing concerns that the US might get involved. This came ahead of Yellen’s testimony to Congress, where she reiterated that the US economy is still in need of plenty of support through the Fed’s easy monetary policy, but which in the event, had little impact as the market turns its focus towards today’s ECB decision. No change is expected today, but we can expect a good deal of rhetoric from Mario Draghi et al at the ECB, potentially setting the market up for an easing in June in order to prevent the Euro heading higher, which would possibly see it taking out the resistance at 1.4000.
Technically there is little change from this time yesterday, after today’s 28 point range, and as we said yesterday with the Euro approaching the important technical resistance at 1.4000 there appears to be 2 possibilities.
If the resistance at 1.4000 holds, this being the topside of the large wedge formation (see daily chart, below), then we will see a return to lower levels, where the initial wedge support lies, 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.
In the shorter term, above yesterdays 1.3950 peak, there will be sellers at the previous 1.3966 high, beyond which there are barriers at 1.3975 & 1.4000.
On the downside, there is minor support at 1.3900, ahead of more solid bids at 1.3885 and the 200 HMA at 1.3865.
The short term indicators are mixed, but the dailies do look as though 1.4000 is going to come under some pressure at some stage. A neutral stance is currently required but selling rallies towards 1.4000 with a tight stop and reverse still remains the favourite strategy. There will be plenty of company doing the same thing though, so caution is warranted, and will likely involve some slippage above 1.4000 as stops get triggered, if it does get taken out.
Economic data highlights will include:
German Industrial Production, ECB I/R Decision, Press Conference
Jim LanglandsFX Charts www.fxcharts.com.au
