A weak ZEW sent the Euro lower ahead of today's CPI readings. US Retail Sales due later.

Aud, Kiwi holding support ahead of a busy day of data.

The German ZEW came in much weaker than expected today, the lowest in 18 months, sending the Euro back down to 9 month lows before spending  the latter half of the session recovering its losses when the US$ came under some mild pressure of its own. Today sees various CPI readings, including Germany, and then later the focus will be on the US Retail Sales. Asia will look to the Japan GDP and BOJ Minutes to provide some action while Australia gets the Consumer Confidence data. Chinese Retail Sales and then later the UK Quarterly report and unemployment completes the data line-up, in what could be a busy session.

EUR/USD: 1.3365

The much weaker than expected ZEW economic survey dented the Euro today sending it down to 1.3335 before a mild squeeze back towards 1.3365 as the session wore on. The German ZEW reading deteriorated sharply from 27.1 to 8.6 in August, far below expectation of 18.2 while the overall EU economic sentiment figure also tumbled from 48.1 to 23.7 versus consensus of 41.3.

Today we get plenty more data from the EU, with the focus being on the inflation readings from Germany/France/Spain and the EU Industrial Production. Later in the day will see the release of the US Retail Sales for June (exp +0.2%mm).

Technically, the Euro has a short term triple bottom at around 1.3335 and this needs to break before it can head down towards 1.3294 (7 Nov ’13 low) below which, more distant targets are seen at 1.3228 (61.8% of 1.2754/1.3993) and then eventually at 1.3104 (6 Sept ’13 low). With the EU GDP expected on Thursday it could be that we get there sooner rather than later, particularly if Germany looks as though it is slowing sharply, which could well be the case given the sanctions that the EU has placed on Russia, one of Germany’s largest trading partners.

The short term indicators are actually now pointing a bit higher for the Euro and thus we could see a bit more short covering before it is able to break down though the 1.3335 area. Sellers are reportedly camped at 1.3375/85, a break of which would most likely take the Euro back to the top of the descending channel, now at 1.3400, a break of which would see an acceleration back towards 1.3433, last Friday’s spike high. Above there looks a bit unlikely right now, but if wrong, we could then be in for a run up towards 1.3470 (38.2% of 1.3699/1.3332) and possibly 1.3485 (23.6% of 1.3993/1.3332/ daily Kijun /). Above this would see more stops triggered and could force an acceleration higher towards 1.3500, which previously acted as strong support and should now provide good resistance. A break of 1.3500 would test 1.3525 (38.2% of 1.3993/1.3332), beyond which could head up to the base of the previous wedge formation (blue line), currently at around 1.3575.

The strategy remains the same as before. Continue to hold a core short position but leave room to sell into strength, with a SL above 1.3440.

Look for 1.3340/90 to cover it before the data and take the direction from the strength/weakness of the CPI readings and later watch for the US retail sales.

Economic data highlights will include:

German/France/Spain CPI, EU Industrial Production, US Retail Sales, Business Inventories

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EUR/USD: 4 Hour

USD/JPY: 102.22

The dollar has had another quiet session and there is little to report although we may see a bit of action today, with the Q2 GDP and the BOJ Minutes both due.

Overall though the dollar looks set to remain within the recent range given that the indicators are fairly flat and for the time being the bids remain intact at 102.00 while the offers at 102.40-50 also remain untouched.

This range looks as though it could hold once again, and the 200DMA (102.30) and 100 DMA (102.05) could again provide the parameters. Below 102.00, further support sits close by, where the daily cloud lies, albeit that it is very thin, with the top/bottom parameters being at 101.85/95. Below there could see another fall to Friday’s 101.50 low, but which looks doubtful, although a break of which would see a return to the strong support just above 101.00, where semi official bids were previously rumoured to lie. I doubt we are going to pay a visit down here any time soon, but if wrong, further very strong support lies at the horizontal blue support line (chart) at around 100.80.

On the topside, if we can get above 102.50 we could then potentially run up towards the recent spike high of 102.93, which comes ahead of the 30 July high at 103.08 but I cannot see it above here today. If and when 103.00/10 is overcome, then we would most likely be in for an acceleration towards the 3 April high at 104.10. This looks to be some way off at this stage and I doubt that we see it this week but beyond 104.10 the next target coming into view would be the 21 Jan high at 104.74.

For the time being continue to use 102.00/50 as a guide

Economic data highlights will include:

GDP, BOJ Minutes

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USD/JPY: 4 Hour

GBP/USD: 1.6812

Cable has had an interesting session, making a new trend low at 1.6756 before turning to rally quite sharply up to 1.6815 as shorts run for cover ahead of today’s BOE Quarterly report and Unemployment numbers. A hawkish statement from Mark Carney could see a continuation of the squeeze higher as the market focuses on the chance of a 2014 rate hike.

The close above 1.6800 is positive, and with the momentum indicators pointing higher it looks as though we could yet head towards the descending channel resistance at 1.6840 (also the daily Tenkan). As we said yesterday, the bullish divergence on the 4 hour charts adds some weight to the move higher and if 1.6840 gets taken out we could then be in for an acceleration towards the Fibo resistance at 1.6860 (23.6% of 1.7191/1.6756). Above that, 100 DMA at 1.6875 and the 5 Aug high at 1.6890 would come into sight, with a break of 1.6900 then targeting 1.6920 (38.2%).

While the short term charts look positive, the dailies do not look quite so sure and if Carney is dovish in his outlook, then we could yet return below 1.6800 and back to the day’s low. A break of 1.6750 would head down to the next port of call at the previous lows at 1.6737 (11 June) and then towards 1.6692 (29 May low). Below here would see a deeper decline to the 200 DMA at 1.6650 but this looks some way off right now.

For the time being, buying dips seems to be the plan, but wait to see what the BOE have to say.

Economic data highlights will include:

UK Unemployment, BOE Quarterly report, BOE Mark Carney Speech

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GBP/USD: 4 Hour

USD/CHF: 0.9075

US$Chf made it up to 0.9103 after the ZEW pushed the Euro lower, but as with the Euro, the Chf has regained much of the lost ground as the dollar came under pressure in the latter half of the day.

As with yesterday, the initial support is at 0.9050, which is the base of the weekly cloud and comes ahead of the minor rising trend support at 0.9040. A break of this  level would head back to Fridays low at 0.9032, below which would see a run down towards 0.9000/10 which had proved rather sticky on the way up. Further bids should be seen at 0.8985/90, although I am not sure that we see it down here today. If wrong, below there would test rising trend support, currently at 0.8965 and then the 200 DMA at 0.8945.

On the topside, if/when we can regain 0.9100 and last week’s 0.9114 high, then we could then head on towards 0.9130 (23.2% of 0.9838/0.8698), beyond which would see a run up towards the 100/200 WMA’s, which both currently lie at around 0.9160. This should be strong resistance but a break of which would suggest a run up towards 0.9190 (20 Nov ’13 high) and then to 0.9249 (7 Nov 13 high).

It looks as though we could be in for a choppy session and for the time being it would look as though 0.9050/0.9100 may cover it. It may be that we have to wait a while before we see the dollar above 0.9100 again but the medium term preference of buying dips remains unchanged.

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USD/CHF: 4 Hour

AUD/USD: 0.9275

The Aud has once again held the support at around 0.9250 (low 0.9248) and has squeezed back to 0.9270 ahead of today’s WBC Consumer Confidence and China data.

The short term momentum does point to the chance of further gains and if the recent 0.9285 high can be taken out, we could then see a further recovery towards 0.9300 (0.9292; 23.6% of 0.9505/0.9239), above which would head back to the descending trend resistance and 38.2% Fibo level at 0.9325 and then on to the 100 DMA at 0.9338. Beyond this could bring about stronger recovery and head back towards last week’s spike top at 0.9375, although it looks to be stretch too far for now.

A break below 0.9250 would find further support at Friday’s 0.9239 low, below which would most likely see some acceleration towards 0.9200. Under here, the next target would be the 200 DMA/38.2% Fibo support of the rally from 0.8660/0.9505 at 0.9175. A break of this could see a much deeper move towards minor support at around 0.9135 and then to 0.9100 and maybe to 0.9050 (50% pivot of 0.8660/0.9505).

While the short term charts point a little higher, the dailies look less certain of any sustained rally and overall it could be that we are in for a few more sessions of consolidation within the broad 0.9250/0.9320 range. If we do see a move to the topside, selling into the strength maybe an option, looking for the next leg lower.

 Economic data highlights will include:

WBC Consumer Confidence, Wage Price Index, China Retail sales, Industrial production, Urban Investment

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AUD/USD: 4 Hour

NZDUSD: 0.8435

The Kiwi made a new trend low at 0.8408 which held the Fibo support (38.2% of 0.7718/0.8835) beautifully, before a bounce back to current levels at the end of the NY session.

The bullish divergence in the 4 hour charts could see further gains and if the descending trend resistance/200 DMA at 0.8455 can be taken out, stops would then get triggered, which could propel the Kiwi on towards 0.8500 and possibly to 0.8530 and which, if seen, would be a decent sell opportunity I suspect, in looking for an eventual run to 0.8400 and lower.

If any decent rally fails to materialize, then we could head directly back to the session low, below which further support would be seen at the 4 June low at 0.8401. I don’t think we are heading down here yet, but if/when 0.8400 gives way, a deeper correction would most likely head rather quickly to 0.8275/0.8300, with little support to be seen in between there and 0.8400.

NZ’s July PMI and Q2 retail sales are due tomorrow and ahead of that it could be that we chop around current levels. For today, look for 0.8410/55 to cover it, but possibly with a buy entry stop order place above 0.8460 in case we do see a bit of a short squeeze towards 0.8500.

 

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NZD/USD: 4 Hour