EURUSD (week: 15-19 May, 2006)

Embarked on a steady trend up, EURUSD made new highs last week and is on its way to test 1.30 at the time of this writing. This level is now the next (major) resistance to be breached before last year's highs could come into focus. Last week's dissapointing figures from the U.S. made it clear once again that the mid-term perspective on the greenback is clearly bearish. Trade Balance fell 5.6% to $62 billion, Industrial Supplies fell 7%, Univ.Of Michigan Consumer Confidence Report also fell to 79.8 (from a previous value of 87.4).

Technically, last week brought a clear breach of several important levels, 1.2775, 1.2830, 1.2870 and 1.29, and now the pair seems ready for a first attempt up at 1.30. We definitely expect this level to be tested this week, and it is likely to resist at least the first tests, thus temporarily limiting further EUR gains. A new channel is visible on the 4h chart, with the upper trendline already breached last Friday - we expect this trendline to act as immediate minor support for the pair around 1.2930 during the next days. If 1.30 proves strong enough (technically and psychologically) to top the EURUSD rally for now, and the pair enters a retracement move down (as we expect), 1.2830 could be its first mid-term target (previous important ceiling and a 50% fib. of the recent rally from 1.2660 to the new res. level possibly established at 1.30), followed by 1.2750. However, for such a move to develop, the market will need to find reliable support at 1.30 and at least some fundamental backup from data coming out this week and the next. Market sentiment is highly bullish at the moment, daily and weekly indicators strongly supporting further movement up. However overbuying, profit-taking and the need for mid-term longs to be re-established lower in the 1.27-1.26 zone are factors likely to support a necessary correction wave, which is our view should start during the next days somewhere in the 1.30-1.3050 area.

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