AUD/USD: 0.9263EUR/USD: 1.3385It has been a quiet session, driven mainly by mild US$ strength but generally going nowhere fast and in the absence of too much data it could be similar day ahead. We do have the EU/German Survey today which could provide some volatility, but that aside there is little to drive direction unless the politicians step in to drive up tensions in Russia etc. Australia gets the NAB Business Conditions/Confidence and the Housing data. Japan gets Industrial Production, Capacity Utilization. Look for more consolidation.
Having been unable to add any further gains to Friday’s positive close, the Euro has drifted a little lower in a day of consolidation, with the market concerned about the economic situation in the EU and the ongoing situation in the Ukraine, and is closing the NY session close to the day’s low, with the dollar assisted by mildly firmer bond yields.
We can probably expect another quiet day today, although there is some event risk around the corner from the EU, and should that surprise to the upside (unlikely) we could yet see a bit of a short squeeze given that the market is heavily weighted to the short side, as far as the Euro is concerned. Today sees the German and EU August ZEW reports, while tomorrow brings the individual EU CPI numbers and then on Thursday we get the EU/German Q2 GDP. A WSJ article suggesting that an OECD report pointing to a German economic slowdown has done little to help the Euro and if the data does remain soft, then it could head to wards 1.3300 later in the week.
Technically there is little change, although 1.3400 will now act as minor resistance ahead of Friday’s peak at 1.3433. Beyond there, we could be in for a run up towards 1.3470 (38.2% of 1.3699/1.3332) and possibly 1.3485 (23.6% of 1.3993/1.3332/ daily Kijun / trend resistance). Above this would see stops triggered and could force an acceleration higher to 1.3500, which previously acted as strong support and should now provide good resistance. A break of 1.3500 would then test 1.3525 (38.2% of 1.3993/1.3332), beyond which could head up to the base of the previous wedge formation (blue line), currently at around 1.3575, although this looks unlikely to be visited, at least early in the week.
The downside is currently being propped up by the 100 HMA (1.3378), a break of which would hint at further losses towards 1.3360. I don’t really see it back below here over the coming session unless the ZEW is much weaker than expected, but if wrong, look for a run back to 1.3345 (100 WMA) and then to last week’s 1.3332 low. Under there, 1.3294 (7 Nov ’13 low) would attract with more distant targets seen at 1.3228 (61.8% of 1.2754/1.3993) and then eventually at 1.3104 (6 Sept ’13 low).
In the bigger picture, as before, while the dollar uptrend remains intact, the eventual target for the Euro appears to be the 9 July low 2013 at 1.2754, albeit that it looks somewhat distant for the time being while the Euro looks to remain underpinned by short covering needs.
The chance of a short squeeze still remains but if we do see it back towards 1.3500 I suspect that selling into the strength is probably the plan, looking for the next leg lower, but for today I think that 1.3360/1.3410 may well cover it.
Economic data highlights will include:
EU /German ZEW Economic Survey
Jim LanglandsFX Charts www.fxcharts.com.au
