AUD/USD: 0.9270EUR/USD: 1.3365The German ZEW came in much weaker than expected today, the lowest in 18 months, sending the Euro back down to 9 month lows before spending the latter half of the session recovering its losses when the US$ came under some mild pressure of its own. Today sees various CPI readings, including Germany, and then later the focus will be on the US Retail Sales. Asia will look to the Japan GDP and BOJ Minutes to provide some action while Australia gets the Consumer Confidence data. Chinese Retail Sales and then later the UK Quarterly report and unemployment completes the data line-up, in what could be a busy session
The much weaker than expected ZEW economic survey dented the Euro today sending it down to 1.3335 before a mild squeeze back towards 1.3365 as the session wore on. The German ZEW reading deteriorated sharply from 27.1 to 8.6 in August, far below expectation of 18.2 while the overall EU economic sentiment figure also tumbled from 48.1 to 23.7 versus consensus of 41.3.
Today we get plenty more data from the EU, with the focus being on the inflation readings from Germany/France/Spain and the EU Industrial Production. Later in the day will see the release of the US Retail Sales for June (exp +0.2%mm).
Technically, the Euro has a short term triple bottom at around 1.3335 and this needs to break before it can head down towards 1.3294 (7 Nov ’13 low) below which, more distant targets are seen at 1.3228 (61.8% of 1.2754/1.3993) and then eventually at 1.3104 (6 Sept ’13 low). With the EU GDP expected on Thursday it could be that we get there sooner rather than later, particularly if Germany looks as though it is slowing sharply, which could well be the case given the sanctions that the EU has placed on Russia, one of Germany’s largest trading partners.
The short term indicators are actually now pointing a bit higher for the Euro and thus we could see a bit more short covering before it is able to break down though the 1.3335 area. Sellers are reportedly camped at 1.3375/85, a break of which would most likely take the Euro back to the top of the descending channel, now at 1.3400, a break of which would see an acceleration back towards 1.3433, last Friday’s spike high. Above there looks a bit unlikely right now, but if wrong, we could then 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 /). Above this would see more stops triggered and could force an acceleration higher towards 1.3500, which previously acted as strong support and should now provide good resistance. A break of 1.3500 would 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.
The strategy remains the same as before. Continue to hold a core short position but leave room to sell into strength, with a SL above 1.3440.
Look for 1.3340/90 to cover it before the data and take the direction from the strength/weakness of the CPI readings and later watch for the US retail sales.
Economic data highlights will include:
German/France/Spain CPI, EU Industrial Production, US Retail Sales, Business Inventories
Jim LanglandsFX Charts www.fxcharts.com.au
