Data surprises start to fade for EURUSD and GBPUSD

The FX market is benefitting from some positive data surprises from Europe and the UK. The Eurozone saw a broad-based pick up in manufacturing in May, according to the latest PMI data, while the UK saw its highest manufacturing reading since March 2012. Even Greece registered an improvement, rising to 45.3. This benefitted the EUR and GBP, EURUSD made another stab at the 1.3050 highs from late last week, while GBPUSD is at its highest level since mid-May.

The USD is still continuing to move alongside stock markets, which today means downwards, and a weak dollar is helping to fuel this recovery in sentiment in the FX market. However, a couple of things are worth watching that could derail these “rallies”.

• Essentially we are still range bound in EURUSD (1.28-1.32) and GBPUSD (1.50 – 1.55).

• This morning’s mini-rallies are starting to fade as we approach some key resistance levels including 1.3035 in EURUSD (200 DAY SMA) and 1.5285 (50-day sma) in GBPUSD.

• Investors may be booking profits because they expect volatility later this afternoon when Manufacturing ISM, a key US economic stat, is released at 1500 BST.

• When key crosses are in recovery mode, but are still technically stuck within key trading ranges, economic data is important as it can be the trigger that causes the pair to punch out of the range.

Takeaway: The markets may be cheered by positive data surprises in Europe, but the intense focus on the end of QE3 means that US ISM data at 1500 BST today may be the key driver of FX markets later on. Thus, ranges are likely to persist in the major G10 crosses and investors are booking short term profits.

Technical levels:

EURUSD resistance: 1.3035 (200-dy sma and cloud base), 1.3090 (Ichimoku cloud top).

Support: 1.3005, 1.2990 (50-day sma).

GBPUSD resistance: 1.5290 (50-day sma), 1.5330 (daily cloud top).

Support: 1.5240 (daily pivot), then 1.5190 – cloud base.

Source: Forex.com

02.06.2013