Euro Lower as Markets Focus on Bond Auctions in Germany and Italy; EUR/USD Tests New Yearly Lows

The Euro is trading at 11 month lows (even testing 1.30 at one stage) ahead of key regional event risks that will be seen with the Treasury bond auctions in both Germany and Italy.  These auctions have been cited as one of the main gauges of market sentiment in recent months, and today’s sales will be valued at roughly 8 billion Euros in tandem.  Any significant rallies in bond yields will weigh on equity markets and bring more buying into the US Dollar.  Other negative headlines have centered on comments that the German Chancellor (Merkel) aims to keep the current EFSF limits in place, with no increases past the current 500 billion Euro limit.

Today’s macro data out of the UK will be primarily employment related, with Jobless Claims, Claimant Counts, and the ILO Unemployment Rate all scheduled for release.  Regional earnings reports will be sent from Supergroup, Thomas Cook RWS Holdings and Betfair Group.  FTSE 100 futures are pointed to a lower open (mirroring losses seen in Asia) after yesterday’s disappointing Federal Reserve meeting, which indicated no new quantitative easing stimulus, despite a mostly negative policy statement.  Most regional equities turned lower after the Fed decision after seeing moderate relief rallies earlier in the day.

The economic calendar in the US is relatively bare today, with only the Import Price Index (IPI) and the MBA Mortgage Applications scheduled for release.  Earnings reports are also limited, with only second-tier companies on tap but this was not the case yesterday, as both Amazon and Best Buy showed sharp declines in the aftermarket session after posting weaker than expected third quarter retail sales.  These releases were ominous because they are matching what is being seen the government Retail Sales data.  The monthly figures are actually showing a slowdown in consumer activity despite the strong numbers that were seen on Black Friday.

In Europe, both the DAX and CAC are pointed toward lower opens but we will see some regional macro data that could help support prices.  First, we will see Industrial Production figures out of the Eurozone and this will be followed by PPI, Import Prices and the ZEW survey out of Switzerland.

The Swiss data could actually prove to be the most market moving of the bunch as any easing in Producer Prices will lead more analysts to speculate the SNB will use their next monetary policy meeting as an opportunity to raise the price floor in the EUR/CHF.  If this revaluation does come to be, this is probably where most of this week’s volatility will be seen as the result could be as much as a 700 pip change from current levels.

Technicals:

The EUR/USD has broken some highly significant long term historical levels in this latest move downward, so here we will scale out to the weekly charts to get a better idea of what to expect next.  Yesterday’s key break came as prices probed support at 1.3140, reaching new yearly lows in the 1.30 region.  Besides being a critical psychological area, this is also the 61.8$ retracement of the mid 2010 rally from below 1.20, so any follow through here will confirm that the downtrend is alive and well.

The FTSE is starting to show some weakness as prices roll over from resistance at 5630.  We have very clear downtrend lines on both the daily and hourly charts, so we will need to see a break of 5630 before we can expect the downtrend to reverse.  First support comes at the Fibonacci level at 5410.

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