EUR/USD May 5 – Testing Resistance Before Trichet

EUR/USD is moving higher within range and approaching resistance as tension mounts towards Trichet’s words in the press conference..Also the US front is busy today, with the last hint towards the Non-Farm Payrolls. Here’s a quick update on technicals, fundamentals and what’s going on in the markets.

EUR/USD Technicals

• Asian session:  Rather quiet session with Euro/Dollar dropping to 1.48 before climbing back up, all within range.
• Current range –  1.4770 – 1.4882

• Further levels in both directions: Below 1.4770, 1.47, 1.4650, 1.4580, 1.4520, 1.4450, 1.4375, 1.4282, 1.4160, 1.4030,
• Above:   1.4882, 1.5020, 1.5144, 1.5250, 1.55
• A second false  break above 1.4882sent the pair to almost 1.4950, but it didn’t hold. Will another attempt succeed?
• 1.4770 has proven to be very solid as support, marking the bottom border of the range

Euro/Dollar stuck in tight  – click on the graph to enlarge.

EUR/USD Fundamentals

• 10:00 German Factory Orders. Exp. +0.4%.
• 11:45 European rate decision. Exp. unchanged at 1.25%.
• 12:30 ECB press conference. The big event of the day.
• 12:30 US Unemployment Claims. Exp. 415K.
• 12:30 US  Unit Labor Costs. Exp. +0.8%.
• 12:30 US  Non-Farm Productivity. Exp. +1.1%.
• 13:15 US FOMC member Charles Evans talks.
• 13:30 US Federal Reserve Chairman Ben Bernanke talks.
• 16:45 ECB president Jean-Claude Trichet talks again. He might clarify his words at the presser.
• 17:15 US FOMC  Narayana Kocherlakota talks. He turned from dove to hawk recently.

For more events later in the week, see the  EUR/USD forecast

EUR/USD Sentiment

• Will Trichet show strong vigilance?: It’s quite unclear what Trichet will say. “Strong vigilance” will mean a hike in June, while “closely monitoring” means not before July. This is the key. The interest rate is likely to remain unchanged.  Yet again, the initial read of inflation exceeded expectations. Contrary to the US, European eye the headline CPI. No hike is expected next week, but it could push it forward from July to June. . A surprising rise will fuel the Euro. See the  ECB preview for more.
• More hints towards NFP: Yesterday’s US figures were very disappointing – ADP Non-Farm Payrolls fell short of expectations, while the ISM Non-Manufacturing PMI was just terrible – triggering the opposite reaction of risk aversive trading – EUR/USD reacted with a fall. Today we’ll get the jobless claims, which jumped last week.
• Portugal Bailout deal closed: Portugal, the EU and the IMF have agreed on a bailout package for the debt stricken country. This includes funding of the government, and some recapitalization of the banks.
  
• Greece cannot pay: CDS spreads and yields are lower, as the anxiety is reduced. The Portuguese deal helps Greece. But the problems in Greece haven’t gone away: the Greek government is finally admitting it can’t pay its debt and begins talking about extending the length of the loan from the EU and IMF, as a delegation comes to Greece. New signs over the weekend show that the  European Union is already working a restructuring program for Greece. The announcement can trigger contagion to other countries.
• Bernanke declares QE2 Lite: The first ever press conference by the Fe yielded one important decision: Maturing assets will be reinvested – the central bank will continue being active, even if it won’t expand its balance sheet. This still means printing dollars, and it weakens the dollar across the board. In addition, inflation was dismissed. This theme will accompany us for a long time.

FXCM Speculative Sentiment Index shows that 66% of traders are short, less than yesterday. According to this contrarian index, this shows more gains for EUR/USD, and now less than beforehand.