EURUSD – the first target reached

Wed, Dec 1 2010, 08:46 GMT by Przemysław Kwiecień Solid data from US and China Conference Board, the major US sentiment index climbed for a second straight month to reach 54,1 pts. – highest since June. An improvement comes along with signs of relief from the labor market, although in both cases it is still disappointingly slow. Could it get better? Perhaps, if activity accelerates again, which was signaled by Chicago PMI yesterday (rising to 62,5 pts.) and may be confirmed by the nationwide ISM today (10.00 ET, 16.00 CET, consensus 56,2 pts.). Stronger activity data has already come from China with the PMI rising to 55,3 pts. The index suggest an expansion is running firm but that also leaves a room for further monetary tightening which in the short term could be negative for the markets. Equity markets – still in defense The major equity markets didn't succumb to the European crisis thus far with the major US indices (but also the German DAX) recording only a minor setback. One might notice that the S&P500 contracts consolidate in a triangle formation with a horizontal support at 1170 points. However, bounce backs from the support are getting thinner. The index should break up from the triangle this week, otherwise odds for breaking 1170 pts. and accelerating a decline will increase. EURUSD – the first target reached The EURUSD reached 1,2970 yesterday, thus reaching a 1,2950 (wave 3 target) – 1,30 (psychological) support zone, as spreads for Spain soared above 300 bps for the first time in the history. However, a market took a pause there allowing the pair to move up a bit. Should the wave 3 end at this point, one might be looking for a correction up to 1,3334-1,3447. But the wave 3 might go deeper after just a short pause. Much will depend on attitude towards Spain and Portugal. In the latter case, S&P rating agency turned up a heat, announcing an observation of the Portuguese rating with a possible downgrade in a span of three months. Events to watch – US data, Portuguese auction Wednesday's calendar is full of macroeconomic released including data on activity and the US labor market. Activity industrial indices will be released in the euro zone (3.58 ET, 9.58 CET, consensus 55,5 pts. – final reading), UK (4.28 ET, 10.28 CET, consensus 54,8 pts.) and US (10.00 ET, 16.00 CET, consensus 56 2pts.). Labor market data include ADP report (8.15 ET, 14.15 CET, consensus +69k) and (less important) Challenger report (7.30 ET, 13.30 CET). On top of this Fed will release a Beige Book (describing activity within districts, 2 PM ET, 20.00 CET). On the European front, there will be an auction of Portuguese bills – interesting in context of S&P's announcement on a possible rating downgrade (currently A-).