The Euro is preparing for its next move, upside capped for now
The Euro currency has attempted break to the upside as the key level around 1.2840-45 has been solidified further. The downside is likely to be the play this week, but it will depend very much on incoming U.S. data as the week progresses. For now the Euro is likely to trade around the 1.2800 figure, given the absence of major economic events.
We are closely looking at the chart and will for now stay put to see a break to the upside or the downside. On the way higher there is a very slim chance to break 1.2840-45 which should open the door higher for a test of last week's highs around 1.2880-85.
However as we said, there is a small possibility for this happening before a break of the key level. Focusing on it, we would be buying daily calls for today's expiry if the rate closes above 1.2845 on a sustained hourly basis. On the other hand, if we don't see a big move lower, lets say below 1.2790, we could find ourselves in a position to buy.
If we see a test of 1.2785-90 and a subsequent close above this level we would be buying daily calls, however if there is a break to the downside, we would be keen to buy daily puts. This will bring us in line with market expectations for not very good manufacturing PMI data for tomorrow.
At this point in time we see the latter scenario as the more likely, however lets not get ahead of ourselves and look to the important factors today. While there is not much data from the U.S. it is fairly important, with the number of existing homes sold painting the picture about the current state of the U.S. housing sector.
The number will be released at 14:00 GMT, and will provide further impetus as to how the housing market is faring. Tomorrow morning we will get the latest sentiment about manufacturing and services survey data from France and Germany, expect it to be down materially, but that might already be priced into the market.