AUD/USD: 0.9320EUR/USD: 1.3400The dollar came under pressure on Friday, with the Euro retaining a bid tone for much of the session as shorts covered ahead of the weekend, accelerating higher after the US data (PPI/ Rts Mich consumer sentiment survey/NY Empire Mfg Index) all came in below expectations. US bond yields headed lower as traders sought safe haven assets after headlines began to emerge of increasing tension in the Ukraine, doing the dollar no favours and saw the Euro spike to a high of 1.3412, before diving back to 1.3375 in volatile trade and then closing back at 1.3400, in line with the previous weeks close.
Despite the recent speculation as to when the Fed may begin to raise rates, the recent run of soft US data appears to suggest that there is little reason for Janet Yellen to act any time soon, which will keep the dollar under some pressure. We get the US CPI (Tuesday), the FOMC Minutes (Wed) and then the Jackson Hole Economic Symposium on Friday, so we will find out more as the week wears on, and thus, “Fed-watching” is going to be the main game for the coming week. The daily DXY though (see DXY report), is beginning to suggest that there may be a bit of downside for the dollar in the next few days and it appears that the Euro shorts will feel a bit more pain.
The Euro is not going to find it easy though to make head-way, and the flash PMI’s on Thursday could well dent any upside potential, with Germany looking particularly vulnerable due to the sanctions on Russia, and we could yet see a test of the strong 1.3335 support.
Technically, 1.3415 remains important resistance a break of which would see an acceleration beyond the descending trend resistance, towards last Friday’s spike high at 1.3433 and then to the 1 Aug high at 1.3444. Above there, which looks a bit unlikely today, 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 a squeeze up 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.
On the downside, the 100/200 HMA’s are at around 1.3370, a break of which would see a decline back through the bids at 1.3350/60 and eventually to the increasingly important support at 1.3335, where sovereign bids were seen last week. Large stops lie below here though, which if triggered would drive the Euro 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).
The bigger picture remains unchanged. While the dollar uptrend remains intact (although this looking rather dubious at present), 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. I notice Citibank are calling for an eventual run towards 1.2200 as a distant target.
A slow squeeze to the topside looks likely to start the week but it will be mid-late week before we see any real action. While the short term bias remains to the upside, the more medium term outlook is for an eventual return of dollar strength and a lower Euro.
Economic data highlights will include:
M: EU Trade Balance, NAHB US House Market index
T: EU Current Account, US CPI, Housing starts
W: German PPI, FOMC Minutes
T: Flash Markit EU Mfg/Services/Composite PMI’s, Flash Markit US Jobless Claims, US Mfg/Services/Composite PMI, Existing Home sale, Philly Fed Mfg Survey
F:Jackson Hole Symposium
Jim LanglandsFX Charts www.fxcharts.com.au
