AUD/USD: 0.9315EUR/USD: 1.3430The dollar rally came to an abrupt halt after the soft US Jobs/NFP numbers on Friday, and while the overall uptrend remains intact, short term momentum may temporarily reverse to the downside as shorts get squeezed. Major focus points this week will see central bank decisions from the RBA, ECB and BOE, while the Services, Construction and Composite PMI’s are also due. Today will see the EU Sentix Investor Confidence Survey and the US PPI, Australia gets the Retail Sales, TD Inflation numbers and the ANZ Job Ads.
Last week’s dollar rally came to an abrupt halt on Friday after the combination of the NFP miss (209K v 230K exp) and the slightly higher unemployment rate (6.2% v 6.1%) caused a sharp move lower, allowing the Euro to recover to a high of 1.3445 before closing at 1.3430, with the dollar given some assistance by the better than expected US ISM manufacturing PMI, which beat expectation (57.1 v 56.0 exp). The market had been frightened about the Fed moving towards raising rates but for the time being there is little from these numbers to cause too much concern and further near term dollar weakness now looks possible.
The coming week may see some choppy conditions, with the potential for some more short covering of the dollar, ahead of the ECB meeting on Thursday, which will be the week’s main focus. Another dovish outlook from Mario Draghi will then place the Euro come under pressure again and the potential for a retest of last week’s lows at 1.3370.
For the time being, the 4 hour charts remain positive for the Euro, and having returned from its lows to close on the 200 WMA, this may provide some early week support for a run back to Friday’s high at 1.3445 (daily Tenkan) and beyond, towards the descending trend resistance at 1.3500 and then to 1.3515 (23.6% of 1.3993/1.3370). If we get above here, the daily Kijun at 1.3530 will provide minor resistance, but above which there could be quite an acceleration given that the market is extremely short of the Euro - (CFTC figures show Euro shorts at a 2 year high) - and we could then see a run up towards the base of the previous wedge (blue line) at 1.3560 and on to the next Fibo resistance at 1.3605 (38.2% of 1.3993/1.3370/daily Cloud base), but which should prove strong resistance and not be easily broken. Above here though, would suggest an even bigger squeeze, and should the Euro recover 1.3700 it could become rather nasty for the shorts, although for the time being I think this looks unlikely given that the dailies still point lower, albeit that they may be in the process of flattening out.
The longer term bullish dollar trend does remain intact and although I doubt that we head there today, below 1.3400 would see another run to 1.3370. Below this would head towards 1.3340 (100 WMA) and 1.3294 (7 Nov ’13 low). More distant target would be at 1.3228 (61.8% of 1.2754/1.3993) and then 1.3104 (6 Sept '13 low).
In the bigger picture, as we have said before, the eventual target for the dollar appears to be the 9 July low 2013 at 1.2754. Again, as before, 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. I think we are in the process of seeing one of these squeezes now and it could be that we have an opportunity ahead of us to sell the Euro in the 1.3500/50 area. Alternatively, shorter term traders may look for dips to be short term buy opportunities as the squeeze gathers pace.
For today, use 1.3410/1.3460 as a guide, with the Sentix likely to be the main focus ahead of the US PPI.
An interesting article appeared on Reuters over the weekend (see below), quoting the head of the IFO, suggesting that Q2 German economic growth will shrink to 0% (as opposed to previous forecasts of 0.3% growth) because of the fallout from the Ukraine situation, which in the medium term does not bode well for the Euro.
http://www.reuters.com/article/2014/08/02/us-ukraine-crisis-germany-economy-idUSKBN0G20JH20140802
Economic data highlights will include:
M: EU Sentix Investor Confidence, PPI, ISM NY Index
T: EU Services/Composite PMI’s, US Services/Composite PMI, ISM Non-Mfg PMI, US Factory Orders
W: German Factory Orders
T: German Industrial Production, ECB Meeting, I/R Decision, US Jobless Claims, Consumer Credit
F: German Trade Balance, US Wholesale Inventories.
Jim LanglandsFX Charts www.fxcharts.com.au
