AUD/USD: 0.9390EUR/USD: 1.3525It was a volatile session on Friday with currencies, equities and commodities all seeing decent moves. While the Ukraine plane crash remains in focus the price action will most likely stay choppy with direction coming from political soundbites. The dollar looks as though it may be building for a move higher, but while the holiday season is in full swing we may need to wait a bit longer for any real action. A stronger US CPI (Tues) and/or weaker EU PMI's (Thur) may be the catalyst to help it on its way. Other highlights will include the Australian CPI (Tues), BOE Minutes (Wed), RBNZ Meeting (Thur), Japan CPI and US Durable Goods (Fri).
The Euro finished Friday more or less where it started, although it did manage to crack the 1.3500 barrier in heading to a low of 1.3490 before a bounce back to 1.3525. The move lower seems to have been ignited by the Bank of Italy announcement that it had lowered its 2014 GDP estimates to 0.2% from 0.7% "with risks to the downside".
The coming week is a bit thin on the ground with regard to data, with the EU highlights being the PMI’s and the German IFO survey, while from the US the CPI (exp 2.1%yy, 0.3% mm-June) will be the main focus. If the EU numbers continue to show a soft tone and the US inflation picks up a little then the dollar may begin to accelerate to higher ground, but for today it looks as though we may be in for a reasonably quiet session. It appears as though it will be political events that shape the outcome over the next couple of sessions and if the Russia/Ukraine situation escalates, then we are likely to see a move to the safe haven of the dollar.
Technically the main feature has been the removal of the 1.3500 barrier and if the dollar can make headway, then beneath Friday’s 1.3490 low, the next bids will arrive at 1.3476 (24 Feb low), but below this there is not too much support, suggesting that we can potentially look for a run down towards 1.3415 (200 WMA). Below this,1.3370 (50% pivot % of 1.2754/1.3995) and eventually 1.3300 (100 WMA) and 1.3294 (7 Nov ’13 low) wood come into view.
On the topside, sellers are lining up above 1.3540, with more to be seen at 1.3560 and 1.3585, ahead of 1.3600. Given the increasingly negative look of the daily indicators, I don’t really see it back above 1.3600 today, but if wrong, and the Euro does head higher over the next couple of days, offers in the 1.3640/50 area remain solid, where the minor Fibo resistance at 1.3646 (61.8% of 1.3700/1.3562) would provide strong resistance. A break of this level would see the Euro head on to 1.3665 (76.4%/ daily cloud base/200 DMA) but now looks a long way off. Further out, the Euro would find sellers at 1.3700, a break which would see a run up towards 1.3730(100 DMA), which should be solid resistance although a break of this level would head on towards 1.3803 (61.8%).
In the bigger picture, if the wedge formation that we have been discussing over the last few months turns out to be correct we could be at the start of a larger move down, potentially targeting the 9 July low 2013 at 1.2754. Don’t get too excited yet, if it turns out to be correct, I think it will be a choppy and relatively orderly progression and there should be plenty of opportunity to get on board into the odd, intermittent short squeeze.
For today, given that the 4 hour charts look to have some positive momentum behind them, I would not be surprised to see a squeeze up towards 1,3570 area, possibly to 1.3600 (doubtful), but the overall view remains one of looking for rallies to sell into ahead of an eventual move lower.
Economic data highlights will include:
M: German PPI, Chicago Fed Activity Index
T: US CPI, Existing Home sales, House Price Index, Richmond Fed Activity Index
W: Consumer Confidence (provisional)
T: EU Flash Mfg/Composite/Services PMI’s, US Flash Mfg PMI, New Home Sales, Kansas Fed Activity Index
F: German IFO, Consumer Confidence, US Durable Goods Orders
Jim LanglandsFX Charts www.fxcharts.com.au
