Dollar strength continues as Angela Merkel is crushed in German state elections

EUR/USD
Range: 1.2879 – 1.2903
Support: 1.2850
Resistance: 1.3000

The euro remains on the back foot at the start of the week following the news that German Chancellor Angela Merkel’s conservative party were battered in a closely watched election in Germany’s largest state yesterday, raising doubts whether her government can stay in power after next year’s general election. Today sees the release of EU industrial production data at 10am, which is expected to show a decline to 0.3% but I suspect the single currency will continue to take its direction from the political situation in Greece as talks of a Greek exit from the eurozone are gaining momentum.

GBP/USD

Range: 1.6050 – 1.6077
Support: 1.6000
Resistance: 1.6150

Sterling is trading with a slightly offered tone as the US dollar continues to show strength in the G10 space and with EUR/GBP looking a little fatigued around 0.8000 (GBP/EUR 1.25). We may see the opportunity to load fresh longs at 1.6000. The main event for the UK this week will be the inflation report on Wednesday, where we will get the MPC’s latest thoughts on the disappointing Q1 GDP reading pushing the UK back into a technical recession.

AUD/USD

 
Range: 0.9996 – 01.0070
Support: 0.9950
Resistance: 1.0050

AUD initially rallied above 1.0050 following news from China that the PBoC cut its reserve requirement ratio by 50 basis points effective from May 18, 2012. This is the third cut since December. The Chinese related rally provided the market with better levels to sell into, with the psychological 1.0000 level taken out as the US dollar rallied across the board. AUD remains under pressure and I look to sell rallies to 1.0050 for a test of 0.9950, with AUD/JPY looking likely to test the 80.00 level.