AUD/USD: 0.9330EUR/USD: 1.3130It has been quiet in the absence of NY, with the slightly softer than expected EU manufacturing PMI’s causing little reaction in the Euro. It could be another steady session for the major pairs, with little to disturb the markets until the US ISM manufacturing PMI later in the day, although as ever, the markets will be keeping a close eye on the developments in the Ukraine. The RBA will be meeting today, so Aud will be in focus and while no change is expected to policy, an overly dovish tone in the statement could see it come under pressure once again. Australian Building Approvals and the Current Account are also due.
There is little to add today due to the NY holiday, with the Euro currently sitting just above its lows but under pressure due to the ramping up of the tensions in the Ukraine, and with traders now looking towards Thursday’s ECB meeting.
The EU PMI’s were mixed, but generally on the soft side (EU 50.7; exp 50.8, – Germany 51.4; exp 52, – France 46.9; exp 46.5) and did little to stir any interest although the coming session will see the US ISM manufacturing PMI which could cause some volatility if it is too far from expectations (56.8). Other than that there is little to stir too much interest today and the market is likely to sit on the sidelines ahead of the ECB, and then the NFP on Friday.
Technically there is no real change, and as with yesterday, the first downside target is close by at 1.3104 (6 Sept ’13 low). 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 still look as though they may be running out of downward momentum in the short term, so I suspect that if we do head down towards 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. Goldman Sachs last week lowered their 3, 6 and 12 month EUR/USD forecasts to 1.29, 1.25 and 1.20 respectively , and I 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 again seen at 1.3150 and then at 1.3165 (100 HMA). I don’t think that we are going above here today unless the ISM comes in a long way below expectations, but the market remains heavily short of the Euro and we could yet get a nasty squeeze. A break of 1.3165 could produce a run back to 1.3200 (200 HMA), above which would then take the Euro back to the Fibo resistance at 1.3225 (38.2% of 1.3411/1.3118). Beyond this would trigger stops, possibly taking the Euro back up to the top of the channel at Fibo resistance (61.8% of 1.3411/1.3118) at around 1.3300. Right now this looks unlikely.
Use 1.3100/65 to contain the action today as the market holds its ammunition for the heavy data at the end of the week. Keep the potential bullish divergence of the 4 hour charts in mind, which could produce a bounce in the Euro, but which would give another sell opportunity for further rallies in the dollar.
Economic data highlights will include:
EU PPI, US ISM Mfg PMI
Jim LanglandsFX Charts www.fxchartsdaily.com
