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A quiet night of overnight trading has seen the US dollar give back a bit, as the markets consolidate after the run-up in the greenback that started last week. EUR crept back above 1.3000, the GBP moved above 1.5300 and the USD/JPY tested support at 101.25. More:  USDJPY Could Be In Final Stages Of An Uptrend – Elliott Wave Analysis

This morning’s big news will be the release of German ZEW economic sentiment. After falling to 36.3 in April, the number is expected to move back above 40 in May. Eurozone ZEW economic sentiment is also expected to improve to above 27 after dropping below 25 last month.

Update: ZEW Slides, EUR/USD follows.

These improvements could boost the EUR upon their release. Technically, after bouncing off support at 1.2940, the EUR seems once again comfortable in the 1.2950-1.3100 area. A break of the 1.3000 level would suggest a test of the 1.3030 resistance area, followed by a move towards 1.3060. Support is pretty strong between 1.2940 and 1.2950, so it will take some effort to break these levels. The market is still short EUR, so a better than expected ZEW report in both Germany and the Eurozone could see a quick upward move on short covering.

It will be interesting to see if a move higher creates new selling opportunities or if the market reverses their positions and tests the upward boundaries of the recent trading ranges.

USD/CAD has traded quietly overnight, but has tested the upper side of its overnight range bumping up against resistance at 1.0115. This isn’t surprising given the overnight weakness in the USD. As has been stated many times before, the Canadian Dollar and Mexican Peso tend to follow the USD. USD/MXN is also near overnight highs at 12.15.

Resistance for the USD/CAD is at 1.0125, then 1.0150, with support emerging at 1.0075 and 1.0050.

The AUD is trading just above the overnight lows as the markets await the announcement of its annual budget. After over 20 years of growth, the Australian economy is not as strong as it once was, and this budget is likely to show a deficit and Australia could be in danger of losing their triple-A rating. With the slowdown in China and with commodity prices moving lower, the Aussie economy maybe in trouble. AUD/USD support is at .9950 and a move back above the parity line seems unlikely at the moment.

Update:  the Australian government forecasts a big deficit – AUD/USD tumbles.

As far as today, we’ll once again borrow the line from Simon and Garfunkel. “Something tells me it’s all happening at the ZEW”. I really do believe it, and this release will dictate the movement of the EUR.

Further reading:  Forex Analysis: EUR/USD Stalls Decline around 200-Day Moving Average