AUD/USD: 0.9400EUR/USD: 1.3570It has been pretty much a rangebound session, with the US$ generally a little bit softer, and it could be much the same today ahead of the US CPI. The markets seem to be taking the Iraq situation in their stride, with US equities closing flat and both WTI & Gold also finishing pretty much unchanged on the session, having given up earlier gains. Asia will get the RBA Minutes today ahead of a speech later in the day from RBA Governor Glenn Stevens. Europe’s highlights will be the ZEW survey and the UK CPI.
Some safe haven buying of the US$ on the back of ongoing concerns in Iraq/Ukraine took the Euro down to 1.3512 at the European open before bouncing back to 1.3630 where it sat and did nothing once the EU CPI came in as expected at +0.5%yy.
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Later on, the data from US was mixed but provided little inspiration either way. The NY Empire State manufacturing index rose to 19.3 in June exp (15.7). The TIC report recorded a USD -24.2b outflow in capital in April (exp USD 41.3b inflow) while Industrial Production rose 0.6%, in line with expectations, and the Capacity Utilization climbed to 79.1%.
Technically there is little change, although the Euro does appear to be picking up some mild short term positive momentum and if the descending trend resistance at around 1.3580 can be taken out we could see a bit of a squeeze towards 1.3590 (50% of 1.3676/1.3502) and possibly on to 1.3607 (61.8% of 1.3676/1.3502) and then on to 1.3615 (23.6% of 1.3994/1.2502) 1.3630 (76.4% of 1.3676/1.3502). I would be a bit surprised to see it above there today, and ahead of this, the solid offers at 1.3580 may continue to cap it unless a weak US CPI puts the dollar under pressure, but if the Euro does find some legs, it could eventually reach up towards the 6 June high at 1.3676, which in turn lies just ahead of important Fibo resistance at 1.3687 (38.2% of 1.3994/1.2502).
On the downside, good support remains intact towards and below the bottom of today’s range. Despite briefly reaching down to 1.3512 today, the Fibo support at 1.3518 (38.2% of 1.2754/1.3995) will again find bids ahead of the post-ECB spike low at 1.3502, which will again be strong support. A break below 1.3500 would head towards the medium term target at the base of the rising wedge, at around 1.3440, where we would be squaring up shorts and looking for a bounce, but think that this is unlikely to be seen today. A break of the wedge base would hint at a further move south towards 1.3370 (50% pivot % of 1.2754/1.3995) and then to 1.3294 (7 Nov ’13 low).
The ZEW will be the focus in Europe and may see the Euro squeeze a bit higher, but it will be the US CPI that will be the main driver (exp +0.2% mm May, 2.0% yy).
In the short term I would prefer to trade the Euro from the long side, as it looks as though the support in the 1.3500/20 area could continue to hold it. Maybe it will be another rangebound session as we wait for the FOMC tomorrow afternoon US time, but I suspect today we should use 1.3520/1.3600 as a guide.
Note that - as per yesterday’s outlook – the DXY is still unable to make a sustained move above the important 80.60 level (see chart below). Having made a run up to 80.70 earlier, it is now back at 80.44, with the daily indicators looking as though they may be building some downside momentum, suggesting that the dollar is going to be under a bit of pressure in the days to come.
Economic data highlights will include:
EU/German ZEW Economic Sentiment/Current Situation, US CPI
Jim LanglandsFX Charts www.fxcharts.com.au
