The EUR/USD ended the day sharply higher, shaking off less than stellar economic data out of Germany (both CPI and Unemployment Change figures missed) and closing up 88 pips at $1.2940. Expect volatility to be high again tomorrow, with a number of Consumer Confidence figures to be released out of Europe, followed by GDP, Pending Home Sales, Jobless Claims, and the PCE Deflator out of the U.S.
unemployment in Germany increased by 21K in May, more than a rise of 5K expected. Unemployment started rising in April 2012 and has increased every month except one since. Through this period, unemployment has increased by a cumulative 103K. Germany also released the Preliminary estimate of the CPI for May. It was a bit above expectations with prices rising 0.3% MoM. The annual rate jumped to 1.7% YoY from April's 1.1%. But this is not of concern as it reverses April's fall.
Given the lack of economic data out of the U.S. in the previous session, some analysts were citing concern over the fact that the USD failed to rally even as comments from Boston Fed President Eric Rosengren were more hawkish then most anticipated. These comments may also have sparked the sharp reversal lower in Treasury yields (bearish USD), at one point hitting a new 14 month high on the 10 yr note of 2.24% before reversing lower down to 2.12%.
no major U.S. economic reports were released today [Wednesday] so the focus was Rosengren. As one of the more dovish members of the central bank, his comment that a modest reduction in asset purchases may make sense in a few months time represents a notable shift in view that suggests he would support tapering bond purchases in September. While he added that the decision would hinge upon further improvements in the labor market and the overall economy, he also indicated that he expects a recovery over the next few months. As these views are consistent with recent comments from Bernanke and Dudley, the consensus is clearly building for an adjustment in monetary policy. The dollar should have rallied in response and it did, but the gains were modest.
As we head into the European/U.S. sessions with important economic news on tap, some analysts are turning to the charts for guidance at future direction of the pair. According to Val Bednarik,
the EUR/USD has traded near both of its range extremes, having been as low as $1.2836 and as high as $1.2976 this Wednesday. Stuck in the $1.2920/$1.2950 area for most of the American session, the hourly chart presents a positive tone as momentum heads higher after correcting extreme overbought readings, yet as stated earlier, the $1.2840/$1.3000 range will likely hold until next week Central Banks and NFP news.
From a longer-term technical perspective, there are also some interesting developments worth pointing out. The daily chart appears to be forming a 'pennant' continuation pattern, with the upper resistance boundary located around $1.3000 and the lower support boundary located near $1.2860. A close above/below either of these levels would likely lead to a large move, perhaps as much as 230 pips (measured move pattern target). Given the number of economic reports due out in the coming session, market participants should monitor the above mentioned levels closely.