AUD/USD: 0.9265EUR/USD: 0.3625Despite the soft EU CPI, the market did little with the Euro, apart from some mild short covering, preferring to wait for the outcome of the ECB meeting tomorrow, where an easing of some sort now appears fully priced in. Before then sees plenty of data, with the EU Services PMI’s and Q1 GDP to be the European focus, while the US gets the warm up for Friday's US Jobs/NFP numbers with today's release of the ADP Employment report. Australia will focus on the Q1 GDP.
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
The Euro has moved a bit higher against the dollar today as the market squared some short positions ahead of the ECB meeting tomorrow, at which some form of easing is now seen as a foregone conclusion. The mild short squeeze came about despite the weak EU CPI figure, which fell from 1% in April to 0.7% in May, with the Euro unable to break below the recent 1.3585 low, where the support is solid, before bouncing to as high as 1.3647 and then returning at the end of the US session to sit right on the 200 HMA at 1.3620.
EU unemployment was mildly improved at 11.7% in April which did nothing to hurt the Euro.
The real danger tomorrow, is that the ECB do not act as aggressively as the market would deem appropriate, which could bring about an an aggressive short squeeze, potentially taking the Euro sharply higher. At this point, the charts do not suggest that there is going to be any major selloff in the Euro even though an easing is widely expected, and indeed the 4 hour charts are mildly supportive of the Euro, which looks as though we could see a retest of the day’s highs.
If 1.3635 (daily Tenkan) and 1.3650 (200 DMA) can be taken out, then look for a run up to last week’s high of 1.3668. The first Fibo level to watch is at 1.3680 (23.6% of 1.3993/1.3585), a break of which could head on to 1.3700 and 1.3739 (38.2%/100 DMA). The base of the daily cloud is not seen until 1.3800.
On the downside, 1.3596 (76.4% of 1.3475/1.3995) has acted as a bit of a pivot recently, a break of which would return to 1.3585 where there is now a minor triple bottom, which is strong support. Below here would see a drop towards 1.3560 (27 Feb low) and then to 1.3520 (38.2% of 1.2754/1.3995) but I doubt we head down here yet.
Today could see a minor drift higher as more position squaring takes place but all up it would not surprise to see further sideways drift in the 1.3600/50 range. There is plenty of data out today though, starting with the EU Services PMI’s and the Q1 GDP (exp 0.2% mm, 0.9% yy) and then later, followed by the US ADP Jobs data (exp +210K) which comes ahead of Fridays NFP.
Economic data highlights will include:
EU Services PMI’s, EU GDP, PPI, US ADP Employment, Trade Balance, ISM Non- Mfg PMI, Beige Book
Jim LanglandsFX Charts www.fxcharts.com.au
