Market frustration and illiquid conditions could produce a spike above 1.5901

Releases from Europe:

February Forecast Actual
French Industrial Production (MoM) +0.0% +0.3%
French Industrial Production (YoY) +1.4% +2.0%
French Manufacturing Production (MoM) +0.1% +0.3%
French Manufacturing Production (YoY) +1.2% +4.3%


French industrial production surprised to the upside of forecasts but still registered a slowdown in annual numbers from January. Overall the results are positive within the context of a slowing economy with the moderation gradual.

The EU’s Juncker met with President Bush last night and appears to have laid down a line by telling Bush that current high levels of the Euro cannot be accepted in the long term, although the definition of “long term” hasn’t been advised.
He also added that G7 will seek a “minimum handle” on currency moves. Exactly what that means is totally unknown. It almost sounds like the implementation of exchange controls but that would be an impossible task and fraught with potential quagmires and inter-market implications. We’ll have to see whether G7 can interpret his comments…

The following economic releases are due today:
February
Italian Industrial Production (MoM) - 0.5%
Italian Industrial Production (YoY) - 0.8%
U.K. Visible Trade Balance GBP -7.5bn
U.K. Total Trade Balance GBP -4.2bn
U.S. Trade Balance USD -57.5bn
March
U.S. Continuing Claims (29th)
April
U.S. Initial Jobless Claims (5th) 385K

The Bank of England is due to announce its rate decision
The European Central Bank is due to announce its rate decision

The Dollar broke lower yesterday and has only approached its lows against the Euro while those against the Swiss Franc and yen are still a long way away. There is no hope for the Pound which is suffering more than the Dollar.
The market has a hunger to push the 1.5901 high in the Euro but there is a real possibility that the market sees it as a target to be reached rather than basing it on any real new solid news.
Liquidity has been low in the market for some while and such conditions are a breeding ground for reversal patterns which feed off weakly founded sorties into new price territory amid excessively strong sentiment.
All I can say is that the conditions are ripe. We just need the pattern to complete.
Over today and tomorrow we have ECB & BOE rate decisions and the G7 meeting. Today’s events will hardly provide much of a reason to push the Dollar in either direction though the Pound may provide the greatest potential for solid moves today.
G7 has always sought to influence the market but fails to deliver. Well, times are tough and this can hardly be described as a “normal” market so the excuse for the central banks to use intervention is lying at their feet. The pre-G7 bluster and rhetoric has been there but not any sign of commitment.
It wouldn’t surprise me that we see a break to new Euro highs in thin conditions over today and tomorrow… but it really is a case of “wait and see.”

Note important support and resistance areas:
USDJPY EURUSD USDCHF GBPUSD
Res: 102.50-93 1.5949-87 1.0070-10 1.9895-25
Res: 101.50-90 1.5879-01 1.0007-31 1.9790-20
Spt: 100.45-72 1.5780-00 0.9889-12 1.9700-20
Spt: 100.00-20 1.5715-45 0.9787-38 1.9605-46
See Also