Euro Price Action Confounds; All Signs Risk Negative But Market Supported

Euro Price Action Confounds; All Signs Risk Negative But Market Supported By Joel Kruger, Technical Strategist 24 April 2012 05:44 GMT EUR/USD: Despite a slew of worrying fundamentals which have been weighing on risk correlated assets, overall, these markets have been suspiciously well supported. A batch of weaker Eurozone PMIs, political troubles for Sarkozy in France, questions surrounding Dutch AAA rating status, and an ever weakening Spanish debt situation, all contribute to a very shaky Eurozone outlook that should in theory result in a more substantial risk off reaction than the one we have seen. Throw in continued signs of slowdown in China, some relative weakness in the emerging markets and the latest softer than expected Auatralian CPI, which seals the deal for a rate cut in May, and the ability for markets to remain supported becomes all the more confounding. However, we can not ignore price action, and with the Euro being the key market to watch, inability to break down below 1.3100 on Monday leaves us with a much more cautious outlook. We will wait for a sustained break above 1.3200 or back below 1.3000 for a clearer directional bias. The latest round of setbacks have stalled ahead of some key multi-week support by 1.3000 and from here we still can not rule out risks for additional consolidation above 1.3000, before considering bearish resumption. Last Friday’s bullish close opens the door for additional gains over the coming sessions, but ultimately, any rallies towards 1.3400 should be well capped. A break and daily close back under 1.3000 is now required to put pressure back on downside and accelerate declines to the early 2012 lows at 1.2660.