FX_Trader_Analyst

EURUSD price action critical for DAX this week

INDEX:DAX   DAX Stock Index
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Interesting period ahead for DAX             and EURSUD. Last week we could see mixed readings in EU and US.
Week started with slightly positive German CPI             followed by slightly negative European GDP. Industrial production was also negative in EU as well as negative US retails sales. Positive numbers for Initial jobless claims in US but Reuters/Michigan consumer sentiment index came negative. At the end of the week Mario Dragi repeated well known "What ever it takes" phrase on IMF meeting.
For me no surprise that US industrial production and more importantly Consumer sentiment came negative last week. If rate hike is seen as a signal of prosperity and strong economy, what it would mean to people when they hear news like Rate hike postponed to September or numbers are not supporting rate hike. I bet people can feel that FED is not really seeing improvements in the economy,so people are left worried.

Given the fact that DAX             is highly weighted on export oriented companies high levels of EUR is the last thing producers want to see. Not surprisingly DAX             is falling as EURUSD             is rising. But EURUSD             is rising more that DAX             is falling. This disproportion can expose DAX             to more volatility and chances of stronger decline over next few days should the EURUSD             get closer to 1.15 mark.

With recent EURUSD             appreciation let's analyse in nutshell what caused EUR to go up. Is it that more people are buying EUR?Do you think people have forgotten divergence monetary policies in EU and US? I think investors went to quick to hard on selling side of EURUSD             and now are just rebalancing portfolios. We can actually see on COT reports what people are not going long EURUSD             they just reducing short positions. Not EUR is improving but long USD positions are reducing.

Rising EURUSD             is also the last thing Mario Dragi wanted to experience given the fact of millions EUR being pumped into the economy to stimulate the growth. Eventually he will need to step up and maybe bring another phrase similar like "What ever it takes" to talk down the value of EUR.

Same applies for FED as their hesitation signalling consumers, producers and investors that US economy is not ready yet. People than buy less, save more; producers produce less with lower credit exposure and investors do not support a view of improving US economy neither.


It will be critical to see price action of EURUSD             and if breaks above 1.15 levels DAX             can easily break below11200 as previous rejection of 50% Fib zone suggests retest this support zone and given the overvalued DAX             compare to EURUSD             , DAX             can extend decline to test 50% Fib February rely around 10800 levels.
If EURUSD             stays around 1.145-1.15 range we can expect DAX             trapped within a range of 11200 and 116500 this week unless we will be given significant information during FOMC meeting of ECB meeting this week where both will have a chance to talk up/down their currencies .
Given this I see EURUSD             increasing slightly towards 1.15 - 1.155 mark until Mario Dragi will signal to the market again their intention to bring the value of EUR down.
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