AUD/USD: 0.9350EUR/USD: 1.3380Soft EU data weighed on the Euro early on, before the sell off in US$Jpy precipitated a turnaround with it being the turn of the US$ to feel the heat, coming under pressure on all fronts. This allowed the Euro to regain its lost ground, closing NY near its highs as the market now turns its focus fully towards today's ECB meeting and the important press conference featuring Mario Draghi. The BOE meeting will be the other highlight today, with the possibility of a split within the MPC as to when a UK rate rise should take place. Before then, Asia will concentrate on the Australian Employment numbers.
Soft German factory orders (-3%; June) and a contraction in the Italian Q2 GDP, which pushed Italy back into recession, combined to push the Euro down to 1.3332 in early Europe before the dollar took on a weaker tone, led by a selloff in US$Jpy, and allowed the Euro to bounce to session highs in NY to 1.3386. With the speculative market sitting very short of the Euro, traders have their fingers crossed that Mario Draghi will take a dovish stance later in the coming session at the ECB Press Conference, hoping that he will help to push it back down. Given the soft nature of the recent run of EU data, this is probably the way that he will run with it, but should he strike a more neutral stance we could see a nasty short squeeze which could drive the Euro a fair bit higher.
Technically, the shorter term charts are now suggesting that this could be the case and a test of 1.3400 (100/200 HMA and descending trend resistance) would not really surprise, ahead of the ECB statement, as nervous short covering continues to drive the Euro a little higher. Beyond here would take the Euro back to around 1.3415/20 (200 WMA), a break of which could see a further spike towards Friday’s high at 1.3445 (daily Tenkan). I am not sure that the Euro is likely to head much beyond here unless we see a larger short squeeze on the back of a neutral Draghi statement, but if wrong we could see a run up to 1.3475 (38.2% of 1.3699/1.3332) and then to 1.3490/00 (descending trend resistance/23.6% of 1.3993/1.3332) beyond which the daily Kijun at 1.3530 will provide resistance.
On the downside, 1.3350 (100 WMA) and then the session low at 1.3332 will see good bids. Given the bullish divergence visible on the 4 hour charts, I am not really that confident that the Euro is going to head too much lower today, but if we do break down below 1.3330, the next level of support will arrive at 1.3294 (7 Nov ’13 low), a break of which would head towards 1.3228 (61.8% of 1.2754/1.3993) and then eventually to 1.3104 (6 Sept ’13 low).
While the longer term decline remains in place, I suspect some caution is necessary today. Should we see a squeeze higher though, I think that in the longer term it will probably prove to be an opportunity to sell into it, looking for the next leg lower. If Draghi remains very dovish though, the Euro is going to quickly run out of steam up here and will head directly to the downside.
Economic data highlights will include:
German Industrial Production, ECB Meeting, I/R Decision, US Jobless Claims, Consumer Credit
Jim LanglandsFX Charts www.fxcharts.com.au
