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Euro can’t break the spell around 1.3000

The bloc currency is posting gains for the second consecutive session so far, after the psychological support of 1.3000 proved to be too high a hurdle for the euro bears. Today improvements from the service sector of euro zone members have combined with decent figures from the retail sales in the euro area, bringing some respite to the euro traders… at least until Thursday, when the ECB holds its monthly gathering.

… All eyes on the ECB

The recent correction higher looks like it is aligned with the late spike in risk aversion following USD’s rally over previous sessions, in combination with dovish comments by Fed’s Janet Yellen, exalting that the ongoing quantitative easing programme would continue as long as the US economy continues to stay below par.

Even the so-called US ‘sequester’ seems to now pass undetected amongst the market participants, after recent comments by Chief Ben Bernanke served to diminish the force of its headwinds. However, the FX community would now turn its focus on the US government shut-down, due on March 27th, giving back some support to the greenback.

Pivoting back to Thursday’s ECB gathering, market consensus remains unchanged regarding the benchmark interest rate. However, pressure is building up in light of the upcoming sessions, where the uncertainties emanating from the lack of a government in Italy and the performance of the euro zone would prompt investors to start considering the likelihood of a rate cut.

All in all, seems that the EUR/USD would continue to meander between 1.30 and 1.31 in the hours ahead of the ECB meeting.

In case bearishness gather pace, the cross would see the interim target at the psychological limestone of 1.3000, ahead of 2013 lows at 1.2966 (March 1st). The next support would be in the region of 1.2880/1.2920, where converge the 50% Fibonacci retracement of the July’12 – February ’13 upside and the 200-day moving average, ahead of the area of 1.2680/90 where sits the 61.8% retracement and November lows.
On the upside, the 38.2% level lies at 1.3072, followed by the area of 1.3160/70 where sit the 100-day moving average and the top of the down-channel set from February tops. The next resistance awaits around 1.3300/20, a relevant area where lay the 23.6% retracement, the 55-day moving average and the uptrend set from summer 2012 lows.

Moving forward to Wednesday’s docket in the euro area, the most relevant data would be the final Q4 GDP figures of the bloc, expected to contract 0.4% inter-quarter and 0.9% on a yearly basis. Across the pond, the ADP report would be in the limelight ahead of Friday’s Non farm Payrolls, followed by Factory Orders and the Fed’s Beige Book.

European markets up on EMU data and Eurogroup meeting

The German DAX 30 (+1.45%), the French CAC 40 (+1.17%), the Italian FTSE MIB (+1.48%) and the Spanish IBEX 35 (+1.02%) are moving higher on Tuesday, along with most of the European equity indexes, in reaction to better than expected Services PMI data and retail sales in Europe.
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Forex Flash: Bunds eye correction despite long-term bullishness – RBS

According to Technical Markets Strategist Dmytro Bondar at RBS, “Bund prices formed a meeting lines reversal pattern after opening above the previous high, suggesting there would likely be correction for now.” Corrective targets include 145.00/144.90, possibly 144.50. “In the long term, the price formed a pennant pattern with the measuring target of 147.00 (flags fly at half-mast). We believe this target will be met after a possible correction from the 145.82 resistance. Resistance is expected at 145.82, 146.00/17, 146.37 and 146.67. Overall, favor being long to 146.00/17 onto 146.67 and 147.00 on a caveat of a sustained break below 144.5.” Bondar adds.
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