Euro Remains Locked in Choppy Interday Consolidation; Standing Aside
- EUR/USD remains key market to watch
- A break of multi-day range required for clearer directional bias
- Eurozone uncertainty and China slowdown are key themes
- Fed officials continue to hint at shift in monetary policy outlook
- German IFO comes in better than expected
We enter the new week with the Euro still very much locked in a tight multi-day consolidation predominantly defined between 1.3000 and 1.3300. This will be the key market to watch going forward and a sustained break above 1.3300 or back below 1.3000 will be required for a clearer directional bias. A break on either side will likely shape the fundamental landscape of the markets, with a push above to result in some risk positive price action which will favor broad based bids in correlated currencies like the commodity bloc, along with other assets like global equities. However, a break back below 1.3000 will be viewed as a risk negative development, with markets likely more focused on ongoing troubles in the Eurozone, and the prospects of a hard landing in China.
Relative performance versus the USD Monday (as of 10:50GMT)
It will also be worth paying attention to comments from Fed members, with recent speak from a plethora of these officials tilting to the less accommodative side. Clearly any additional signal or hint of monetary policy reversal will also influence price action in the FX markets, with the US Dollar benefiting from an expected narrowing in yield differentials. For now, Eurozone auctions come into focus and these results will be watched closely. The softer bout of Eurozone PMI data in the previous week has been downplayed by various Eurozone officials, but any signs of stress from the upcoming auctions could amplify the impact of softer economic data in the region and put the Euro back under pressure.
As we head into North American trade on Monday, the choppy trade continues with the Euro breaking down below 1.3200 before rallying back into the mid-1.3200’s. The market had been well offered even after a better than expected German IFO showing, with talk of heavy Middle Eastern account offers, and concern over the potential need for a larger Eurozone Firewall initially offsetting any positive momentum from the German data. However, bids were quick to emerge below 1.3200 and the market once again rallied back into familiar territory. Looking ahead, Fed Chair Bernanke and US pending home sales will be the big events in the North American sessions. US equity futures are tracking some 0.30% higher ahead of the final session for the day.
EUR/USD: The market has been well supported on the latest dip towards key support at 1.2975 and the subsequent bounce back above 1.3100 delays bearish prospects and opens the door for additional consolidation over the coming days. The key levels to watch above and below come in by 1.3315 and 1.2975 respectively and a break and close above or below will be required for clearer directional bias. In the interim we remain sidelined.
USD/JPY:The market has finally started to roll back over after daily studies were showing well overbought and begging for some form of a corrective pullback. At this point, setbacks have stalled by the 20-Day SMA and a double top objective in the 82.00 area and the market could be looking to carve a fresh higher low somewhere ahead of the next upside extension beyond 84.20 and towards the 85.00-87.00 area further up. However, we would still not rule out the possibility for a deeper setback to 80.00 before the newly formed bullish structure resumes. As such, we are sidelined for now and will look to buy into dips.
GBP/USD: The market has been mostly confined to trade between the 100 and 200-Day SMAs since early February and until we see a clear break on either end, we will continue to see some choppy range trade. Key levels to watch above and below come in by
1.6000 and 1.5600 respectively and we will wait for a break on either end to establish a clearer directional bias.
USD/CHF: Setbacks have stalled for now just ahead of 0.8900 and the market could finally be looking to carve the next medium-term higher low ahead of a bullish resumption and eventual break back above 0.9660. The latest break back above 0.9300 helps to confirm bullish outlook and should now inspire further gains over the coming days. Ultimately, only a drop below 0.8930 negates and gives reason for pause.
--- Written by Joel Kruger, Technical Currency Strategist
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