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Euro supported by German fundamentals

The shared currency found its way through the key barrier at 1.3400, pushed by positive prints and better investor mood after yesterday’s ZEW Survey in the first economy of the euro bloc. Today’s German inflation figures just passed ignored by markets, as were French CPI and worrisome Italian industrial sector numbers. The FOMC minutes due in the European evening are now posed to be the next hurdle for the EUR/USD.

… Long lasting correction higher?

Anyway, it seems that a cautious tone is prevailing amongst traders in the last sessions, as two significant risk events are approaching: one placed in the euro’s backyard, the Italian elections on February 24th-25th and the other one across the Atlantic and with implications via the US dollar, the so-called US ‘sequester’, which is expected to trigger automatic spending cuts across the board worth $1.2 trillion. In addition, both events are at the moment open to any outcome, casting more uncertainty to the upcoming sessions.

Furthermore, the fuel needed for a sustained recovery, again eyeing levels such as the 2012 highs around 1.3485 or February highs above 1.3700 seems to be well protected under the ECB wings, as denoted by Draghi’s last speeches talking down the single currency. On the opposite side of the road, further pullbacks seems to be well contained around the area surrounding 1.3300, from expectations of better prospects for the bloc in the second half of the year. In terms of political names, Draghi, Weidmann and Nowotny, just to mention a few of them, seem to be taking the bulk of the future swings of the cross.

On a longer-term horizon, we can infer that the initial resistance for the euro lies around 1.3480/85, where are located the 50% Fibonacci expansion of the 2011 highs -2012 lows and the 2012 highs, followed by 1.3532 (200-week moving average) en route to 1.3640 (Upper Bollinger band), 1.3711 (2013 highs February 2) and 1.3822 (61.8% Fibonacci expansion).

In addition, Karen Jones, technical expert at Commerzbank, suggests, “The market has started to erode the near term downtrend at 1.3418 and we would allow for a near term recovery. Provided rallies remain capped by the 1.3520 resistance they will have no impact on our negative bias. Above here will suggest another run up to the 1.3711 recent high”.

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