The EUR/USD Watches and Waits

Asian markets on Tuesday morning are still in risk-off mode. On Monday morning, Asian investors saw the glass half full as poor Chinese eco data were seen as raising the chances for more policy stimulation from the fiscal and/or monetary authorities. This morning, the glass is half empty even as the news flow is not really that different. EUR/USDis changing hands in the 1.2765 at this time.

Today the eco calendar is bare while markets are more in tune to the German Court, Greece and the US FOMC this week. There are no important eco data in Europe. One might expect headlines on the difficult negotiations between Greece and the Troika. However, the market probably won’t change its recent positive attitude on the euro due to these negative headlines on Greece. A formal break is probably not around the corner. In the same context, there will still be a lot of headlines on tomorrow’s ruling of the German constitutional court and, to a lesser extent, on the Dutch elections. However, the German court is not expected to block the ESM. So, this issue might soon be out of the way. At best, these headlines might help a technical correction that otherwise also will take place. In the US, the small business confidence and the July trade balance data will be published. With respect to the trade balance figures, markets will keep an eye on the details to get some information on the domestic spending (imports) or on the global economy (exports).

However, there is doubt that this report will change the markets’ assessment on Fed’s policy approach on Tuesday. A similar conclusion can be made for the NFIB small business confidence. So, the impact of both data series will only be of intraday significance for EUR/USD trading, at best. More technical trading in the run-up to the Fed meeting will be the name of the game. Expect today’s price action to be quite similar to what happened yesterday. Assume that the downside in EUR/USD is rather well protected as we don’t expect big appetite to buy the dollar going into the ‘event risk’ of the Fed meeting.

The EUR/USD touched a 2012 low at 1.2043 on July 24. From there, EUR/USD rebounded after ECB’s Draghi said that the ECB would do whatever is needed to preserve the single currency. Later in August, the soft tone of the August FOMC minutes pushed EUR/USD above the 1.2444 range top, improving the short-term picture. At the end of last week, EUR/USD cleared the next series of important technical resistance levels. The move halted just before the ‘last’ level of defense (1.2824, May 21 top).

This week began with a cautious buy-on-dips approach for EUR/USD; a break above the 1.2817/24 area would reinforce to technical momentum in this cross rate and could inspire further dollar selling. In a MT perspective, 1.3284 is the next higher profile point of reference on the EUR/USD charts.

Leave a Reply

Your email address will not be published. Required fields are marked *