AUD/USD: 0.9370EUR/USD: 1.3694It was a choppy end to the week but most pairs ended going nowhere too far from where they started, with the exception of Cable which continues to recover from last week’s sell-off. Soft bond yields continue to impede dollar strength, while a potential easing from the ECB keeps the pressure on the Euro. A fairly light data schedule early in the week could see further choppy consolidation and it may not be until the flash PMI's on Thursday that we see any real action. Today's highlight will be the EU Construction Output, so don't expect it to be overly exciting!
The Euro was unable to recover on Friday, and instead chopped around either side of 1.3700. Some mixed secondary US data pushed the dollar around a bit, but ultimately ended up close to where it started against most currencies, albeit below 1.3700 for the first time since February. Despite a possible June easing be the ECB, the dollar is going to find it hard to make any real gains while US bond yields look set to remain so soft, with the 10 years finishing Friday at 2.516% (low 2.473%) despite the improved housing starts data, which rose 13.2% to 1.07 million annualized units in April, the strongest level since November 2013.
The week ahead is reasonably light on data, until Wednesday, when the FOMC Minutes will be released, but even these should contain few surprises as the US continues its zero interest rate policy, and it may be Thursday before we see any real action, when the flash PMI’s are due. A generally soft outcome from Europe could well be the catalyst to push the Euro towards the next major target, below last weeks lows and down towards the 200 DMA at 1.3623
In the meantime, the 4 hour charts continue to unwind their oversold condition and we could yet see a short squeeze to retest 1.3725 (100 HMA) and possibly 1.3740 (100 DMA) at some stage. If seen, this should prove strong resistance, although a break higher would hint at a run up towards 1.3780 (200 HMA/38.2% of 1.3995/1.3648) and potentially up to 1.3800.
On the downside, dips should again be seen at around 1.3670 and then again at last week's low at around 1.3650.
Further out, with the the dailies still pointing lower, so we will probably need to take a look at the 200 DMA (1.3623) eventually, and beyond there, the next meaningful support is at 1.3595 (76.4% of 1.3475/1.3995).
In the bigger picture, as I pointed out previously, and can be seen on the weekly chart below, I suspect that we are in a large wedge formation, the downside objective of which is at 1.3375, where the 200 WMA also lies.
Don’t look for too much today and I suspect that 1.3670/1.3830 may well cover it.
Keep an eye out for the pan-EU Parliamentary elections taking place from 22/25 May. A swing to the more extreme parties could see the Euro come under further pressure.
Economic data highlights will include:
M: EU Construction Output
T: German PPI
W: EU Current Account, Consumer Confidence, FOMC Minutes, Yellen Speech
T: EU Flash Mfg/Services/Composite PMI’s, Chicago/Kansas Fed Mfg Activity, Flash Mfg PMI, Existing Home Sales,
F: German GDP, IFO, New Home Sales
Jim LanglandsFX Charts
