The Euro showed impressive strength at the end of last week, further squeezing the shorts, and looking as though there is the distinct possibility of more to come. In the short term, with Greece having secured the second tranche of the bailout package, and in anticipation of the upcoming second LTRO from the ECB, the Euro showed solid strength on Friday reaching a high of 1.3483 before a minor pullback.

December’s LTRO operation saw 500+ banks access Eur 489bio of cheap funding. Somewhere between Eur 500bio and $1trillion is expected to be taken up this time. Gauging the effect of the LTRO in the short term, is that a big take up is likely to see the Euro continue to rise as near term funding needs ease. In the longer term though, whether the funds are on-lent to assist with the much needed stimulation of the economy, rather than being used to shore up financial institution balance sheets, remains to be seen. The size of the take-up and how it is used will affect market sentiment and thus the direction of the Euro, so flexibility is key.

The last LTRO was announced at the Dec 8 2011 ECB meeting. That day’s range was 1.3460/1.3285. Not so far away from Fridays really! But seems an age ago!

Elsewhere, the G20 has been taking place in Mexico and  Robert Zoellick, World Bank chief, has poured some cold water on the Greek bailout package by suggesting that it merely buys some time and that the overall problems have not been fixed. It didnt take Einstein to work that one out but the hint is; take care if getting too bullish on the Euro! Upping the ante, even further, the German interior minister, speaking to Der Spiegel over the weekend has suggested that Greece would be better off outside the Euro and should be encouraged to leave.

Keep an eye on oil. If that continues to motor north at its current rate, the equities rally will come to a rapid halt as the global economy grinds to a standstill. The Yen is already seeing the effect of this, and we could see a rush of funds back into the dollar and the safe haven of Treasuries, but that is yet to play out.

Technically the Euro has now broken higher and sits above previous good resistance. Further advances could well be seen towards 1.3500, 1.3555 (8 Dec high) and then to 1.3620 (61.8% of 1.4242/1.2623), which also acts as the current top of the channel, and looks to be the ultimate target for this rally.

The downside is now supported at 1.3355 (neckline) and then at 1.3312 (9 Feb high).

We spoke about the possibility of a reverse head and shoulders last week, with the target being at somewhere up around 1.4000. This is beginning to look distinctly more attainable, now that we have broken the neckline and it appears as though we have the momentum to carry us higher. The first target though, remains the top of the channel at 1.3620, so don’t get too overexcited yet! A return to, and test of the neckline is a real possibility.

Although I don’t see it, a break back below the rising trendline support, currently at 1.3080, would indicate that a medium term top is in place and would herald a move back below 1.3000.

For Monday it looks as though any dips towards 1.3370, possibly 1.3355 would  attract buyers, scenting a move towards the top of the channel.

Economic highlights this week are German CPI, US Durable Goods, Case Schiller Home Prices (Tuesday), German Unemployment, EU CPI, US GDP, US Personal Expenditure (Wed). EU Economic Summit, Unemployment , China Mfg PMI (Thur), EU PPI (Fri)

All up a busy week ahead. Good Luck!

The Euro, having done nothing in Asia, crawled slowly higher in early Europe and accelerated once the German IFO came in at 109.6, better than expected at 108.8. This enabled the Euro to break above 1.3300, but it has done precious little since then and looks set to remain in the wedge shown on the chart below. The brake was put on the topside when the EU commission published its renewed outlook for growth. It sees EU economic growth contracting by 0.3% this year, thus sliding into recession, following November’s projection of a rise of 0.5%. Germany and France are predicted to remain in the black, growing by 0.6% and 0.4% respectively, but peripheral Europe are expected to drag the bloc lower.

Today looks as though once again it could be quiet. There is little on the economic front, ahead of the German GDP and various Fed members speaking later in the day.

Technically then there is not a lot to add from recent sessions. The Euro remains within the wedge formation and isn’t likely to break out of it early in the coming session. The parameters to watch here are 1.3070/1.3370. The day’s high has been 1.3343 and in the absence of anything new, Asia is unlikely to go too much beyond here, although NY is having a mild try at the topside right now, without looking overly enthusiastic about it. 1.3300 now provides a short term base. Look for 1.3300/50 to cover it though Asia.

I am still monitoring the possibility of the reverse head/shoulder formation and the possibility of a continuation higher towards 1.4000. This doesn’t look particularly likely, but you never know your luck! Above 1.3370 today would look a little more exciting!

In the more medium term, I suspect a break of either side of the wedge parameters will lead to a continuation move. To the topside, 1.3430 provides the first target (50% of 1.4242/1.2623) and beyond here the 61.8% level of the same move currently coincides with the top of the down channel at 1.3625. The downside, below 1.3070, would see support at the previous 1.2970 low. This looks unlikely in the near future.

The indicators are suggesting the possibility of slightly higher levels in the short term but really tracking sideways further out, so all in all look for the choppy conditions to continue. It should be quiet today. Take another look next week. Have a good w/e.

The Aud, having given the bottom end of the channel at 1.0600 a severe test yesterday, slowly squeezed higher and then accelerated on the improved German IFO numbers. The improved sentiment saw the Aud recover back to above 1.07 and thus back to the middle of the range. It has so far behaved exactly as we thought at the weekend, with a move down from 1.07 to the level at where C=A in the flat corrective channel at 10.590 (low 1.0596) before a rebound back to 1.07. It doesn’t get much better than that from a technical perspective and a continuation on to 1.0800 would now be more or less perfect. That does not look like happening today though and a session of 1.0650/1.0700 would not surprise. The overnight high has been 1.0715 and I don’t think we are going above there today – at least till later in the session.

In the medium term, nothing has really changed. 1.06/1.08 provides the parameters and until we are shown otherwise we should continue to use these as a guide. Below 1.0590, there is further support at 1.0570 (23.6% of 0.9660/10844) and 1.0525, while above 1.0800 sees resistance at 1.0815 and 1.0844.

The only economic interest today will be RBA Governor Glenn Stevens giving his 6 monthly assessment of the economy.

Today has been the quietest in a long while, with the Euro stuck in a 50 point, 24 hour range, so there is not a lot to report. The only real action was when Euro squeezed higher in early Europe to 1.3265 prior to the release of the German and EU PMI data. The release of those figures quickly put an end to the rally as the EU flash composite figure read as 49.7 against an expected 50.6, while the German reading was 50.1 against the predicted 51.5. The Euro was put quickly back in its place, with a swift move down to 1.3215 and that more or less covered the range for the day. It was an almost Greece free session, with Portugal seizing the headlines, as rumours did the rounds that it may need to restructure its debts. 10 Year yields climbed to 12.66% at one stage. Don’t worry though, Greece is never far away and will soon be back as a headline act as the election approaches, and the scepticism surrounding the likely success of Mondays deal is already increasing. (The Dax closed down 1%). Fitch has already come out fighting, saying that Greece will default and has downgraded Greece to C in order to prove its point.

So technically there is no change. Sellers sit at 1.3300 and above, while buyers are at 1.3160/70.  In the more medium term, price action continues to squeeze into an increasingly narrow range, which looks likely to be the prelude to a breakout and something more directional. It could be that we are forming a reverse Head/Shoulder bottom, with the neckline drawn (white – 1.3370) and if correct would give us an objective of up at around 1.4000. If this were to be the scenario though, it needs to happen more or less immediately as the formation is more or less ready to go. Otherwise we may play out some further range trading within the 1.3030/1.3370 parameters between the 2 white lines.

As far as today is concerned, 1.3215/1.3275 provides the immediate guidelines and beyond there 1.3180/1.3290 should easily contain until Europe  get in, barring any surprises.

Economic data today includes the German IFO and then the US Jobless Claims. It looks like being a quiet one.

Most of the action took place in Asia yesterday and the Aud dropped to 1.0610, landing right on the corrective channel support before rebounding on the China PMI data to 1.0685. It fell again and retested the lows before rebounding to current levels.

So, in the bigger picture, little has really changed for the Aud as the 1.0600/1.0800 range still largely covers it. If we see a break below 1.0610, expect bids now to emerge at 1.0570 (23.6% of 0.9660/10844). Below there, 1.0500 provides back up support but is unlikely to be seen today. To the topside 1.0700 continues to act as interim resistance, ahead of the top of the channel at 1.0800.

Today it looks as though it could be a quiet one. The bids are pretty solid in the 1.600/10 area and should hold, although the 4 hour charts are showing mildly lower bias. The dailies are more bearish, so although we might see a return to 1.0700, the pressure looks to remain lower over time.

So Greece and the EU have got themselves a deal. Whether this is down to actually doing something affirmative for each other, or more likely, because of the dreaded alternative, remains to be seen. With an election just 2 months away and a whole new set of politicians likely to be running the country, it is difficult to become overly enthusiastic about the eventual outcome of the whole fiasco. Certainly the performance of the markets following the press conference has been underwhelming, with the European Equity markets closing slightly lower and the Euro unable to reach last week’s 1.3320 high. The US markets are pretty flat (S+P +0.3% following Wal Mart’s uninspiring results, (which reflect a pretty flat US retail economy)

With the increasing social unrest in Greece and the general feeling that the correct way out of the mire would be a plan that promotes growth, not austerity, there is plenty of mileage left in this story. To quote the head of the German IFO today, taken from the UK Telegraph: “The politicians know the second bailout can’t save Greece. They want to gain time until the next election. I think we’re wasting time by doing this. Greece’s external debt is rising with every year that passes until it leaves the currency union. We’re getting ever further away from solving the problem.” - I guess that pretty much sums it up.

The Euro has been a bit of a damp squib. It feels as though the market is just relieved that it the meeting is over and has decided it needs a rest. The 24 hour range of just 110 pips tells its own story. We currently sit in the middle of the range, and look like doing so for the next few hours. Sellers are reputedly lining up above 1.3300, while buyers are at 1.3160/70.  In the more medium term, price action looks to be squeezing into a more narrow range, which looks likely to be the prelude to a breakout and something more directional. It could be that we are forming a reverse Head/Shoulder bottom, with the neckline drawn (white) and if correct, would give us an objective of up at around 1.4000. If this were to be the scenario though, it needs to happen more or less immediately, as the formation is more or less ready to go. Otherwise we may play out some further range trading within the 1.3030/1.3370 parameters between the 2 white lines. For the coming session use this as a wide range. Asia is more likely to be contained within 1.32/1.33 unless something new hits the wires.

Data wise, we see the HSBC China  Mfg PMI and then later German/EU Mfg & Services PMI and EU Industrial Orders. and US Existing Home Sales

here isn’t much to say on the Aud. It continues in its flat corrective mode, chopping around either side of 1.0700, although it should be noted that it has broken below the lower band of the medium term upchannel that began at 0.9890.

Nothing is likely to happen this morning until we get the HSBC China Mfg PMI data where a reading of 48.8 is expected. The Aud will take its direction accordingly, but the 4 hour charts are hinting that we may want to test mildly lower levels.

Until then I would imagine that 1.0650/1.0700 ought to cover it, although it currently looks a little heavy.

In the bigger picture, the 1.0630/1.0800 range still largely covers the flat corrective range. If we see a break below 1.0630, expect bids to emerge at 1.0610 where the base of the corrective channel currently lies. Below here 1.0590/1.0600 should also see bids.

Following the general weakness in the US Dollar on Monday, caused by Chinas weekend move to cut the RRR, there is not an awful lot to add.The market now awaits the outcome of the meeting in Brussels between the EU Finance Ministers, to thrash out a deal on Greece. Until we hear more there is likely to be little movement in the Euro, which currently sits off the days 1.3276 highs, after a choppy session, driven higher at the outset by the move from China.

European equity markets generally had a good day, in expectation of a positive outcome from the EU meeting (Dax +1.46%, CAC+0.96%) and with the US markets closed there is little to else to report at this time.

Having taken out the 1.3200 resistance early on, the Euro, now sits near the 1.3240 Fibo level and the near term oscillators are mixed. The hourly oscillators are overbought and turning lower, while for the moment, the 4 hourlies continue to point higher. It looks to me, that for the coming session we should use the current days range as an immediate guide without too much expectation of any directional move. If anything I suspect a slow drift lower might ensue as the hourly charts unwind, but I would not get too excited as we may just drift sideways.

There is little point in speculating until the outcome of the meeting is known, so the technicals are pretty much the same as yesterday. 1.3270 is the first barrier now ahead of the 9 Feb high at 1.3320. If seen, beyond here expect an acceleration to 1.3432 (50% of 1.4242/1.2623). Above this is the top of the downchannel which currently lies at 1.3655, which is unlikely to be seen today.

To the downside, 1.3180 now acts as minor support ahead of 1.3155 and 1.3055 short term Fibo support. These are unlikely to be seen unless there is a negative outcome from Brussels, at which point we would need t re-evaluate.

EU Consumer Confidence later today..