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EUR/USD: A quiet week of economic data could keep pair range bound

FXstreet.com (Barcelona) - The EUR/USD closed the day down 41 pips at 1.3072. The pair is still searching for direction and given the upcoming week is much more quiet as far as economic releases are concerned the trading range nature of the pair could continue. There were a couple of economic reports released during the previous European session worth mentioning including Retail Sales which came in at -2.4% actual vs. -1.9% estimate, and number of Market Services PMI figures.

According to Marc Chandler, Head of Currency Strategy at BBH, The EUR service PMI at 47.0, it was an improvement over the 46.6 flash reading, but remains well below the 50 boom/bust level and is still consistent with continued contraction in Q2. German and French reports improved from the flash readings and Italy surprised on the upside (47.0 from 45.5).”

Economic data in the coming European session will mainly be focused on German Factory Orders due out at 10:00 GMT. Given the recent disappoint in German data (PMI/IFO reports both missed estimates), it will be worth keeping an eye on the pair to see how it reacts should the trend of missing estimates continue. It will also be important to keep an eye out for any ECB rhetoric regarding additional easing which seems to be influencing the pair on an intra-day basis since Draghi mentioned the possibility of negative interest rates on bank deposits last week.

According to Kathy Lien of BK Asset Management, “The euro came under selling pressure today after European Central Bank President Draghi made it clear that they are prepared to ease again if economic data worsens. At the end of last week, conflicting comments from European policymakers created a bit of confusion in the markets. Some members of the central bank said investors may have over interpreted Draghi's comment on keeping an open mind about negative deposit rates and clearly Draghi wanted to make sure the market understood that he stands behind his commitment to increase stimulus if necessary.”

Perhaps it’s the fact both US and European equities continue to sharply higher which helps the pair keep a bid during “risk on” trading sessions. For the longest time market participants were dependant on the correlation between equities and EUR/USD which seemed to move in tandem on a daily basis. However, in recent months the correlation had show signs of breaking down which could start to develop again should data out of the US continue to improve.

From a technical perspective, the daily chart continues to be range bound and the weekly/month charts are giving conflicting signals. For example, on the weekly chart it appears a large head and shoulders pattern is forming which would have bearish implications going forward. However, on the monthly chart the pair formed an impressive bullish engulf candle in April, which is a constructive development. Until either of these patterns is confirmed or negated,

The bottom line is when the longer term time frame charts are in disagreement it’s not surprising to see many market participants on the sidelines or flocking to other fx pairs or asset classes which have a more defined trend. In the short term, this means looking for a daily close above 1.3240 (upper boundary or range) or below 1.2950 (lower boundary of range) which will help make the picture more clear and offer between a better risk/reward scenario.

Forex Flash: AUD/CAD squeeze higher remains - TDS

Moments ahead of key RBA interest rate statement today at 04:30 GMT, “We still think the market formed a major short-term low/reversal (strong, bullish “morning star” reversal) last week” on AUD/CAD, the Toronto based FX Research Team at TD Securities said, adding: “and while the 1.0307 low point remains intact, the risk of a squeeze higher remains,” the analyst conclude.
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