The EUR/USD was able to claw back a small portion of its losses suffered last week, finishing the day up 64 pips at $1.2884. Economic news was light on the session with European markets closed and no releases out of the U.S. Market participants will be expecting volatility to really pick up later in the week when we see Fed Chairman Bernanke's testimony to Congress, the release of the most recent FOMC minutes, and a number of other regional Fed speakers on the wires. Given the recent market buzz of the prospects of Fed tapering QE, the next few days could help set a more established trend for the pair as we near month end.
According to Marc Chandler, Head Currency Strategist at BBH,
in the U.S., the FOMC minutes from the April 30/May 1 meeting will be released on Wednesday. Markets will be parsing them very thoroughly for any clues about QE tapering. Those minutes will be sandwiched between another heavy slate of Fed speakers including [Fed governors] James B. Bullard and William C. Dudley on Tuesday, Bernanke testimony on Wednesday, and Bullard again on Thursday. Bernanke's testimony will be the most important, of course. While we expect the key Fed officials to signal steady as she goes with regards to QE, we acknowledge that markets could see some turbulence.
Other analysts also mention to keep a focus on Europe, as we will see a number of important PMI releases from the region later in the week as well as speeches from important European officials including ECB President Mario Draghi.
the latest eurozone PMI numbers will be released this week along with the German IFO report. Economists are looking for a small recovery in manufacturing and service sector activity and if they are right, the euro could extend its gains. A few hours after the PMI numbers are released on Thursday, ECB President Draghi will speak about the future of Europe in the global economy. If the data shows a deeper contraction in Europe and Draghi reminds investors that the central bank is watching economic data carefully to see if additional action is necessary, EUR/USD could extend its losses.
[the] market has seen the dollar giving up ground steadily this Monday, with the EUR/USD trading at its highest in 2 days by the end of U.S. session, near $1.2900. The slow but steady surge has been supported by a general recovery in commodities, along with yen strength following Japan EM Amari's comment past Sunday, in regard to yen weakness. However, movement remains mostly corrective after the almost steady slide from $1.3200: price advances will find short-term sellers at $1.2950 first, while once above, $1.3000 should attract even more selling interest.
Looking at the current 1 hour chart, the pair was able to develop some constructive intra-day technical developments with the gains established during the previous day. The first development to point out is the RSI (14) achieved a bullish shift, closing above the 60 level and now sitting within the 40-80 range. The second development is both the 9 and 20 DMA's have now crossed above the 50 DMA, which could also help fuel additional gains in the shorter term time frames. However, the pair still has a lot of work to do in order to change the daily trend from bearish to neutral, as the longer term time frames (daily/weekly) are still operating under bearish influences after the steep declines suffered last week. Initial resistance comes in at $1.2900 (high of previous day), followed by $1.2986 (the 50 DMA). First support sits at $1.2856 (the 50 DMA on 1 hour chart), followed by $1.2796 (low from May 17th).