The release of a welter of important data, especially from, China and the Eurozone have had little impact on the Euro to Dollar exchnage rate which continues to extend in a range.
Important data out from China this morning had little effect on the dollar index which is currently trading at only one to two basis points above its open price.
The data showed marginal below-expectations growth in Industrial Production and Retail Sales in China in December, the 4th quarter and 2015, but despite the below expectations readings the impact on the dollar was muted.
The euro was also little changed after the China news, and still remained muted following the release of German and Euro-zone CPI’s which gave no surprises and confirmed expectations.
The currency firmed very slightly, however, after other tier two data showed a rise in the trade surplus, Construction Output and the ZEW economic sentiment indicator.
'Bullish Bunds' and 'Bearish Yields'
It had been feared euro-zone CPI might come out below-expectations and weigh on the euro due to the recent steep decline in commodities, however these fears proved unfounded.
According to SocGen’s Kit Juckes the Bund-Treasury yield ratio is a useful way to forecast the EUR/USD.
“EUR/USD has tended to rally on ‘risk-off' days and slip on risk-on ones as the Treasury/Bund spread drives the currency and the fall in Treasury yields has supported the euro in recent weeks.
“A brighter risk mood could see US yields move higher and the euro drift a bit lower, but I'd be surprised to see a break from the current range.
“In the back of my mind, the risks are still skewed towards a break to the upside in Q1, and a move lower only when there's some reason to start looking for Fed rate hikes to resume”.
Technically Tight
There was little change in the technical profile of the EUR/USD pair, which continues to consolidate in a relatively tight, down-sloping range on the daily chart.
One way of looking at the pattern formed since the early December lows is to see it as the A-B part of a corrective three-wave A-B-C pattern
The current consolidation is wave B and the missing wave C has yet to unfold higher.
Wave is expected to rise a Fibonacci 61.8% of wave A, which indicates an expected target at 1.1260.
There are several layers of resistance in the way, however, including the 50-week MA right under it at 1.1041 and the 200-day MA only 3 points above at 1.1044.
It’s important the exchange rate decisively breaks above these levels for confirmation of the up-trend extending higher.
Such a break would probably come from a move above 1.1115, which would confirm an extension up to the aforesaid 1.1260 target.
The Chaikin Money Flow Index is showing underlying strength in the consolidation supports the bullish bias to the outlook.
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