EUR/USD: 1.2730
The Euro initially survived the late NY Moody’s downgrade of the Italian banks in the previous session , and following a predictably flat Asian session yesterday, the German GDP figure gave the Euro a bit of a fillip, rising 0.5% mm and 1.7%yy, against an expected rise of 0.1%/0.8%. Needless to say neither France (flat), nor Italy (-0.8%qq/-1.3% yy against expected -0.6%/-1.1%) did much to help, and the overall EU GDP was 0.0%. Nevertheless, the Euro saw an early morning European rally to 1.2868 but that was as good as it got, as Greek political talks failed and a new election will now need to be held. This has sent the Euro sharply lower to where it currently sits at 1.2730.
Later on in Europe the German ZEW economic sentiment survey was a lot weaker than expected (@ 10.8, rather than the expected 19), with the outcome of the Greece’ future within the EU weighing on confidence and putting a cap on Euro strength, although the downside effect was initially minimal. The EU Fin Min meeting was pretty uneventful too, apart from the fact that a statement was released to say that a Greek exit from the Euro was not discussed, which kind of begs the question as to what they actually did talk about! Lunatics running the asylum come to mind!
The US data was more or less forgotten about as the market looked elsewhere today with the French President Hollande, having met Angela Merkel in Berlin. The Press Conference was fairly muted and very civil, causing no major volatility in the markets.
Bonds didn't have a good day. Spanish and Italian 10 Year Yields are now both over 6%. Equities were no better. with the DAX -0.8%, CAC -0.6 %, S+P -0.5%
Anyway, in an action packed day, the Euro, having reached the early European high, has been one-way traffic and looks pretty sick. It has been a sharp move, and jumping on now, at these levels, may be a little risky, although I have little doubt that we are eventually going a fair bit lower. We have broken well clear of the last major Fibo support, and it looks to me as though the next major target should be at around 1.2670, where the 2 white support lines are due to converge(chart).
It maybe that we go directly south, although the hourly charts are getting rather oversold and I suspect that we may need to see a bit of a short squeeze back towards 1.2800 first before we can summon up the energy to progress lower. If we do not see a short squeeze, the least that we need is some consolidation. The levels to watch are at 1.2700, where apparently there are some bids protecting options. Below here, 1.2670 and then the Jan 13 low at 1.2623. If we get below this level, 1.2565 (23 August 2010 low) is the next target. On the topside, we would initially need to regain 1.2800, in order to see a rally back towards 1.2850 (23.6% of 1.3283/1.2730).
I think be nimble down here, everyone knows the Euro is going lower, but the sheer weight of short positions could see a nasty squeeze first, so stay flexible.
Data wise today, we have EU CPI, US Industrial Production and Capacity Utilization.
