Early in the US session, the dollar was hurt by an unusual rumour of Federal Reserve chairman Greenspan having had a heart attack. This helped EUR/USD higher to the 1.23 area. On top of that also the Chicago PMI disappointed with a larger than expected decline (from 63.6 to 57.6) and EUR/USD went for day highs at the 1.2320-zone. When the rumours on Greenspan were denied by a Fed spokeswoman, the market came around only partially, sticking close to the 1.0223 area.
There obviously is some nervousness ahead of important US data, with to day the ISM manufacturing report. The Greenspan rumour only demonstrated that the market is quite edgy. The euro is feeling somewhat better as speculation on a rate cut this month seems to be evaporating. Still, we need to wait and see what the data/events will bring. These data (with Friday's Payrolls as the cherry on the pie!) are far too important to minimize and just take dollar short positions short-term (or vice versa for that matter) without taking them into account when developing strategies. The data may actually decide the near term direction in this pair, making a re-test of the range boundaries a perfectly acceptable outcome. Remember, we currently perceive a sideways range between 1.2050 and the 1.2460 zones.
We see a medium term sideways range on account that the euro is not feeling that strong too make a renewed leap higher towards the 1.29 zone year highs.
ČSOB - Investment Research