Daily Report: Euro Rebound Continues, More Upside in Near Term

Euro extends this week's broad based rally today and continues to head towards 1.3 against dollar and 100 against yen. Solid bond longer bond auctions yesterday removed the worry on downgrade impact on investor confidence, as least temporarily. Also, markets are hopeful that Greek PSI deal could be reached soon within the week. Short-covering rebound in EUR/AUD and EUR/CAD also gives the recovery added fuel. We'd likely see more upside in European majors in near term, even though, the large down trend is still intact. Current rebound is so far still treated as opportunity to reestablish short position in European majors for the next fall.

It's reported that the progress of Ireland's fiscal consolidation has been ahead of expectations. It has already cut the deficits back below 10% of GDP and was as a result granted more loans by the EU/IMF/ECB troika. However, a concern is that Ireland's economic growth this year may halve the original forecast, making it harder to reach the year-end fiscal target of 8.6% of GDP. Concerning Greece, another Eurozone country that was bailed out, the focus is on the PSI deal. Finance minister Evangelos Venizelos said the discussion has entered the final stage.

Risk appetite remains firm with DOW marching further higher to close at 12623 overnight. DOW is still in progress for a test on 12876 key resistance. Asian equities also extend this week's rally but trading activities are starting to slow ahead of Chinese new year holiday next week. Aussie is not participating in this week's risk rally so far, partly due to weak economic data and partly due to short covering in EUR/AUD. Canadian dollar, on the other hand, also, fails to get out of recent range as WTI crude oil struggles around 100 level.

Data released today saw HSBC China manufacturing PMI stay improved slightly to 48.8 in January. However, as HSBC said, the "third consecutive below-50 reading of the manufacturing PMI suggested that growth is likely to moderate further, following the sharp drop of 4Q GDP to a three-year low at 8% on a q-o-q seasonally adjusted annualized basis." Australian import price rose 2.5% qoq in Q4, much stronger than expectation of 0.6% qoq. Japan all industrial index dropped -1.1% mom in November. Looking ahead, German PPI UK retail sales, Canadian CPI, wholesale sales and US existing home sales will be featured.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.2880; (P) 1.2926 (R1) 1.3013; More.

As noted before, a short term bottom in EUR/USD is formed at 1.2625 on bullish convergence condition in 4 hours MACD. Intraday bias remains on the upside for further rebound to 1.3076 resistance and above. Though, we'd expect strong resistance at 38.2% retracement of 1.4246 to 1.2625 at 1.3244 to limit upside and bring fall resumption eventually. On the downside, below 1.2838 minor support will flip bias back to the downside for retesting 1.2625 low first.

In the bigger picture, price actions from 1.6039 are unfolding as a consolidation pattern in the long term and is still in progress. Fall from 1.4939 is a falling leg inside the pattern. It's hard to anticipate the length of a leg of any complex corrective pattern. The first line of defense would be on the above mentioned 1.2452 projection level. Strong break of this level would then likely send EUR/USD through 1.2 psychological level to 1.1875 and below. Meanwhile, we'd prefer to see sustained break of 1.3145 support turned resistance before considering near term reversal.

Economic Indicators Update

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