The horrifying events in Brussels have overshadowed everything that has happened in the markets today. Although European stocks fell sharply when the news of the explosions hit the wires, they have since rallied back strongly while in the US the markets were quick to shrug off the news as the S&P rallied to a fresh high for the year. It remains to be seen if Wall Street will be able to hold onto its gains by close of play. Meanwhile in FX, the EUR/USD exchange rate fell for a time below the key support at 1.1200, hurt by mixed-bag economic data in the Eurozone and obviously concerns about the rising terrorist threat levels in Europe. This morning saw the German ZEW Economic Sentiment print 4.3 for March versus 6.3 expected, although it was nevertheless higher than February’s 1.0 reading. The ZEW’s current situation index fell to 50.7 from 52.3, disappointing expectations of 53.0. Earlier in the day, the latest German Flash Manufacturing PMI (50.4) had disappointed but the Services sector PMI (55.5) topped expectations, as did the nation’s Ifo Business Climate index (106.7).
There’s little further data to provide direction in this shortened trading week, with the exception of German Gfk Consumer Climate survey and the ECB’s Target LTRO results tomorrow. From the US, the key data to watch for the remainder of this week includes durable goods orders, tomorrow, and the final GDP estimate on Friday. The start of next week will also be a slow one as far as the economic calendar is concerned, but things should pick up later on in the week with the monthly US jobs report scheduled for release on Friday April 1. Because of the lack of significant data in the interim, technical analysis will garner more attention than usual, especially as the lower expected volumes over the coming days should make the markets more vulnerable to sharp moves and more headline-driven.
In fact, the EUR/USD’s daily chart is pointing to a potential rally if it repeats a reoccurring pattern that has emerged in recent days. As noted on the chart, since the ECB’s introduction of more QE, the EUR/USD has tended to rally sharply then consolidate for the next three days. If this trend continues, another rally could be on the way now that we have had three days of falling exchange rates. This is especially the case with the EUR/USD also testing the key support at 1.1200 today, a level which was previously resistance. In the previous occasion, it found strong support off of 1.1070, which was similarly a resistance level in the past.
Indeed, the trend for the EUR/USD is turning bullish judging by the fact that both the 21-day exponential and the 50-day simple moving averages are now rising, while the 200-day simple moving average has continued to flatten. In fact, the 50-day SMA looks set to move above the 200 to form a so-called "Golden Crossover," which would be another confirmation of the changing trend. But for the potential rally to come to fruition the bulls will need to defend their ground at 1.1200, otherwise all bets are off. If this support level breaks down on a daily closing basis then the short-term bias would turn back to bearish. The slightly longer-term trend would remain bullish until and unless price moves back below the 200-day moving average.
The key levels to watch are all shown on the charts. Among others, the key resistance area is between 1.1330 and 1.1375 – a potential break above this range could pave the way for a rally towards the psychological 1.1500 handle. On the downside, a closing break below support at 1.1200 could expose the next support at 1.1070 for a re-test.