AUD/USD: 0.9360EUR/USD: 1.3700The Euro came under further pressure today after the German Bundesbank indicated that it was prepared to support ECB policy action to ease rates, if required, and it would have fallen further had it not been for the soft US Retail Sales which put a dent in the US$ rally. The German/French CPI will be the key focus today, and if below expectations, will likely see the Euro head lower once again, with a June ECB easing looking increasingly possible. Elsewhere, Cable will be in focus, with UK Jobs data and the BOE Quarterly Report due to be released.
The Euro came under further pressure on Tuesday after the German Bundesbank indicated that it would support an ECB decision to implement fresh stimulus tools, including negative rates on bank deposits, should the European economy merit such action.
The German ZEW economic expectations fell sharply, which did not help the Euro and it would possibly had fallen further had it not been for the weak US retail sales which took some steam out of the dollar’s strength.
Today’s focus will be on the French (exp 0.9% yy) and German CPI (exp 1.2%yy) and if these are weak, then we can expect the Euro to come under further pressure, particularly after both Mario Draghi and the Bundesbank noted that ECB action could follow in the event of soft inflation forecasts. Later in the day we get the US PPI.
The Euro has been own to 1.3688, and while I think there is more to come on the downside, the 4 hour charts are at oversold extremes and the hourlies are showing some bullish divergence, so care is needed when entering the market as there could well be a bit of a bounce to flush out the weak shorts in the session ahead.
Currently sitting at 1.3700(23.6% of 1.2753/1.3995), a break below the session low would find further bids at the 4th April low at 1.3675, the Fibo support at 1.3672 (61.8% of 1.3475/1.3995) and the weekly Kijun, at 1.3670, which means that 1.3670/75 should be very strong support and not easily broken at the first attempt. Below here though, would see a drop towards further good bids at around 1.3620 (200 DMA) and then to 1.3595 (76.4% of 1.3475/1.3995). In the bigger picture, as I pointed out the other day, I suspect that we are in a large wedge formation, the downside objective of which is at 1.3375.
On the topside, back above 1.3730 near term resistance, would head towards 1.3775, which has capped the topside over the last couple of sessions. Above here would suggest a run back to 1.3800 (100 HMA), which currently looks unlikely, but if wrong, we could head up to the 200 HMA at around 1.3840.
In the short term I would not be getting overly bearish on the Euro and would even tend to look at buying dips towards 1.3670 today, hoping for a bit of a squeeze higher to allow the short term charts to unwind. However, rallies towards 1.3800 would also appear to be more medium term selling opportunities, so a bit of flexibility is required. For today use 1.3670/1.3770 as a guide, but keep a close eye on the EU inflation numbers.
Economic data highlights will include:
German/French CPI, EU Industrial Production US PPI
Jim LanglandsFX Charts www.fxcharts.com.au
