The EUR/USD finished the day moderately higher, closing up 25 pips at $1.2905 ahead of what is sure to be a volatile session with Fed Chairman Bernanke set to testify in front of congress at 14:00GMT. Furthermore, we will also see the release of the most recent FOMC minutes at 18:00GMT.
According to Sean callow of Westpac,"The U.S. calendar is dominated by Fed chairman Bernanke's testimony on "The Economic Outlook" to the Joint Economic Committee of Congress (10am NY time). He will deliver a prepared text then take numerous questions from both friendly and hostile lawmakers. Volatility over the course of his appearance seems assured, as markets try to quickly decide whether Bernanke is trying to dampen talk of reducing QE some time soon, is affirming such a view or remaining non-committal. USD should gain in the latter two scenarios but we still expect the first outcome - Bernanke arguing that it is too soon to be confident that the economy is recovering sustainably."
Other analysts are pointing towards European economic data as the additional catalysts for the EUR/USD which may help to break the recent range-bound activity. Market participants should be aware that later in the week will see a number of European PMI figures which could also heighten volatility.
This morning's German producer price report showed inflationary pressures continuing to fall in the eurozone's largest economy. The 0.2% decline brought annualized PPI growth down to 0.1% from 0.4% the previous month. Lower price pressures will most likely keep the ECB dovish, but the key to additional easing is not inflation but economic performance. Eurozone current account numbers are due for release tomorrow and with German and French balances increasing in March, the eurozone figures should show improvement as well. EU Leaders will be holding a summit in Brussels tomorrow so watch for headlines related to economy.
From at technical perspective, both short-term moving averages and the RSI (14) remain in bearish set up on the daily chart which could continue to help limit advances. According to our analysts,
Supply at $1.2920-40 has capped the upside for the euro once again, suggesting offers clustered at the level remain in control. This is the key level the euro should overcome to enhance its technical stance towards next supply above $1.30. Until then, supply is in control and risk remains skewed to the downside. Note when/if sellers comeback, the $1.2860-40 demand was eliminated last week, suggesting no real threat of fresh demand seen until $1.2630-$1.2480.
Given all headlines that have been influencing the pair in recent weeks and months, it's not hard to see why the ADX (7) indicator continues remain sharply downward sloping and sitting in the low 20's on both the daily and weekly charts, displaying characteristics of a market which lacks momentum and remains primarily range bound. However, given the fact there is still the possibility of a head & shoulders top forming, the pair could be just a few small catalysts away from breaking out of the range bound activity and starting a serious trend.