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Euro on autopilot between 1.30-1.31

FXstreet.com (Barcelona) - The shared currency remains drawn to the upper echelons of the 1.30-1.31 range so far, while market participants have started to shift their focus on the ECB gathering due on Thursday. Furthermore, market chat regarding a rate cut by the central bank has been building up since early April, capping upside attempts around the 1.3200 figure.

… EMU data is not helping

Today’s poor employment data and deceleration of the consumer prices in the euro area seem to have convinced investors of the imminence of a rate cut by the ECB, as if there were any doubts regarding the tepid economic conditions of the bloc and the accelerated deterioration of its fundamentals, and not only in the periphery, but also in the core itself, as shown by recent worrisome data in Germany.

However, the status quo of the real economy is still not reflected in the debt markets – the panic barometer - as demonstrated by the late Italian and Spanish bond auctions, extending the negative trend of the borrowing costs. Furthermore, the recent developments in Italy have removed significant headwinds in the euro area, although we will surely see the sustainability of the new coalition government put to the test sooner than later.

In addition, the main external factor impacting on the EUR/USD via the greenback is the ongoing QE programme in the US economy which is propping up the cross, as the Fed’s policy looks set to remain accommodative for longer that previously thought. It is not that the US is not growing, it’s not expanding quickly enough to prompt Bernanke and the rest of the dovish members to start thinking of an exit strategy yet. There is no doubt that the US economy will outperform its major peers throughout the present year, however those impacts would likely emerge during the second half of 2013, driving the euro lower.

The cross is now prolonging the consolidation pattern between 1.30 and 1.31 seen in last sessions, and apparently it will hold until Thursday, when the ECB meets.
The initial barrier north emerges at 1.3116 (38.2% Fibonacci retracement of the February-April fall), followed by 1.3201, where sit the April 16th high and the top of the consolidation range, and then 1.3230, the 38.2% retracement.

The initial support is located around 1.2950/75, where sit the 200-day moving average, the 23.6% Fibonacci retracement of the February-April decline and January lows. A breach of that area would then target December lows around 1.2880/85 en route to 1.2740 (2013 lows).

Forex: NZD/USD capped by yesterday’s high at 0.8576

The NZD/USD showed signs of downside pressure very early in the day, with a drop to 0.8542 low, but then the cross climbed the chart throughout the Asian session and ahead of the European opening to reach as high as 0.8573, only to plunge back to its lows in a matter of 30 minutes. As of writing, the NZD/USD is quoting around 0.8562. Overall, the market is trading stronger since April 21, as support at 0.8400 holds.
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