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5 Jun 2013
EUR bears focusing on the ECB
The shared currency found solid support in May’s lows around 1.2800 before attempting another escalade to key resistance levels at 1.3100 and then 1.3200 and beyond. The intent grew from a slight improvement in the euro area conditions after decent indicator results and well-received peripheral bond auctions, as well as traders scaling back rumours about the omnipresent Fed’s ‘tapering’.
Ephemeral joy
All seemed to be going on wheels for the euro bulls, setting their minds and course towards the critical area of 1.3200/45. Further support came afterwards with the poor reading from the US manufacturing sector gauged by the ISM index in combination with stronger PMI prints from the bloc. However, recent highs above 1.3100 the figure have proved to be more difficult to overcome than previously though, rejecting the EUR/USD more than once to the lower area of 1.3050/70. The ECB gathering on Thursday has grown in importance in the last weeks. According to the market pulse, and regarding the refi rate, the likeliness of another 25 bps cut would be a close call, although it seems to be no doubt amongst investors that President Draghi would stick to his recent dovish stance. Although market chatter has eased somehow about the chance of the central bank adopting negative interest rates, recent ECB’s members have not utterly ruled out that scenario, but more disappointing data should be needed, pretty unlikely in the very near term.
What about the USD? The greenback, in terms of the DXY, just had its best month in a year last May. The increased bid tone in the buck came from the likelihood of the Fed scaling back its monthly bond buying at some point in the medium term. The momentum surrounding the USD is reinforced after every drop of good news in the US economy, and it does look set to continue, as the recovery has not stalled, just slowed its pace.
In the technical sphere, the pair is now eroding the downtrend line resistance set from February highs, currently at 1.3080. The next up-barrier lines up at 1.3110 (38.2% Fibonacci retracement of the February-April slide and 100-day moving average) ahead of the area around 1.3200/20, where converge the 50% retracement and May highs. On the downside, a breach of 1.2970 (23.6% Fibo retracement) would open the way to 1.2800 (may lows) ahead of 1.2750 (April lows). The inability of the EUR to grasp a sustainable up-move accentuates the fact that the market has peaked around 1.3200, and only a break above that would change the wider bearish frame. Fading rallies would be the way to go in the short term.
Ephemeral joy
All seemed to be going on wheels for the euro bulls, setting their minds and course towards the critical area of 1.3200/45. Further support came afterwards with the poor reading from the US manufacturing sector gauged by the ISM index in combination with stronger PMI prints from the bloc. However, recent highs above 1.3100 the figure have proved to be more difficult to overcome than previously though, rejecting the EUR/USD more than once to the lower area of 1.3050/70. The ECB gathering on Thursday has grown in importance in the last weeks. According to the market pulse, and regarding the refi rate, the likeliness of another 25 bps cut would be a close call, although it seems to be no doubt amongst investors that President Draghi would stick to his recent dovish stance. Although market chatter has eased somehow about the chance of the central bank adopting negative interest rates, recent ECB’s members have not utterly ruled out that scenario, but more disappointing data should be needed, pretty unlikely in the very near term.
What about the USD? The greenback, in terms of the DXY, just had its best month in a year last May. The increased bid tone in the buck came from the likelihood of the Fed scaling back its monthly bond buying at some point in the medium term. The momentum surrounding the USD is reinforced after every drop of good news in the US economy, and it does look set to continue, as the recovery has not stalled, just slowed its pace.
In the technical sphere, the pair is now eroding the downtrend line resistance set from February highs, currently at 1.3080. The next up-barrier lines up at 1.3110 (38.2% Fibonacci retracement of the February-April slide and 100-day moving average) ahead of the area around 1.3200/20, where converge the 50% retracement and May highs. On the downside, a breach of 1.2970 (23.6% Fibo retracement) would open the way to 1.2800 (may lows) ahead of 1.2750 (April lows). The inability of the EUR to grasp a sustainable up-move accentuates the fact that the market has peaked around 1.3200, and only a break above that would change the wider bearish frame. Fading rallies would be the way to go in the short term.