AUD/USD: 0.9320EUR/USD: 1.3130Some firm US Consumer Confidence data underpinned the US dollar on Friday, once again putting the Euro under heavy pressure, which closed the month at new trend lows. The dollars uptrend looks set to remain intact this week, with the ECB meeting due on Thursday, at which Mario Draghi could well announce some form of easing in the EU, including the introduction of QE. Thursday also sees the ADP Jobs numbers which comes ahead of Friday's US Jobs/NFP data at which another strong reading would suggest that the Fed could act to raise US rates sooner rather than later, and which again would underpin the dollar. Today is the US Labor day holiday, so it will be thin and probably quiet, but we do get the global manufacturing PMI's and the German GDP. Australia gets the TD Inflation data today (ahead of the RBA Meeting tomorrow and Q2 GDP, Thursday) and will look to the China PMI's for direction, while NZ gets Q2 Terms of Trade. There is plenty of other data out this week, and with the Ukrainian issue thrown in, it could be a busy one.
The Euro came under pressure again on Friday, although the EU inflation figure came in as expected at +0.3% and had little immediate effect. The dollar was assisted later in the session by some solid US consumer sentiment data as it made new trend highs against the Euro at 1.3130, where it finished the week.. Today is a US holiday (Labor Day), so it will be thin, but the focus now turns to the ECB on Thursday as we wait to discover what Mario Draghi has in store. It would appear that he is going to have to back up his recent rhetoric and announce an increased injection of liquidity, including the possibility of asset purchases through Quantitative Easing, although if he does not we could see quite a bounce in the Euro.
Aside from the ECB, there is plenty of other event risk this week, with the global Mfg PMI’s today, the US ISM Mfg PMI (Tuesday), the ADP Jobs (Thursday) and then the US Unemployment/NFP ( Friday: exp 6.1%/+220K) all being highlights. Ukraine also remains central to proceedings and any heightening in the tensions there would put the Euro under further pressure.
Technically, the Euro is under heavy pressure at the start of the week, although Monday could again see it supported above 1.3100 in the absence of any NY market. The first target is seen at 1.3104 (6 Sept ’13 low), although a break of 1.3100 would most likely see the Euro accelerate lower towards 1.3045(76.4% of 1.2754/ 1.3993), which if seen should prove strong support. The 4 hour charts do look as though they maybe running out of downward momentum in the short term, so I suspect that if we do head down here it will hold and bounce, at least at the first attempt. If wrong, look for a run towards 1.3000, which will also be heavily protected, but a break of which will open up the possibility of a decline towards the major Fibo extension, this being the 161.8% projection of 1.3993 to 1.3502, from 1.3700 at 1.2906 and then beyond that to the 9 July low 2013 at 1.2754. I noticed last week that Goldman Sachs lowered their 3, 6 and 12 month EUR/USD forecasts to 1.29, 1.25 and 1.20 respectively and would tend to agree with their view, with 1.2042, the July 2012 low, being the obvious long distance target.
On the topside, minor resistance is seen at 1.3150 and then at 1.3180 (100 HMA). I don’t think that we are going above here today, but the market is heavily short of the Euro and we could yet get a nasty squeeze. If so, a run above 1.3200 would then take the Euro back to the 200 HMA at 1.3220 and possibly on to the Fibo resistance at 1.3237 (38.2% of 1.3411/1.3130). Beyond this would trigger stops, possibly taking the Euro back up to the top of the channel at Fibo resistance (61.8% of 1.3411/1.3130) at around 1.3300. Right now this looks unlikely.
Staying short and selling rallies remains the theme. So leave room to sell another squeeze back towards 1.3200, with a stop loss now lowered and placed above 1.3240. Keep an eye on US bond yields which remain soft (10y 2.34%) and are not following this dollar rally, while any failure to act by the ECB on Thursday could yet see a sharp reversal of this dollar trend.
Economic data highlights will include:
M: US Labor Day Holiday, German GDP, EU Mfg PMI’s, US Mfg PMI
T: EU PPI, US ISM Mfg PMI
W: EU Services/Composite PMI’s, EU Retail Sales, US factory orders, ISM Non Mfg PMI
T: German factory Orders, ECB IR Decision/Press statement, US ADP Employment Change, Jobless Claims, Trade balance, Markit Composite/Services PMI
F: German Industrial Production, EUGDP, US Unemployment/ NFP, Consumer Credit
Jim LanglandsFX Charts www.fxcharts.com.au
