EUR/USD: 1.2770
The Euro regained a little of its lost ground on Friday, but not before having made a test of the January, 1.2623 low. Friday reached 1.2642 with sentiment still very negative towards the EU, before turning to squeeze higher, propelled by stops being set off along the way, to close just shy of its high of 1.2793 (exactly 23.6% of 1.3282/1.2642).
The upside for the Euro looks pretty limited though, and with Greece apparently inching its way slowly towards the exit door of the EU/Euro, it would appear that ahead of the election on June 17 we are in for a pretty rocky ride, although technically it was an outside day for the Euro, with a lower low, higher high and a close almost on the highs, suggesting a chance of testing the topside iearly in the coming week.
The G8 has been taking place and the EU crisis has been top of the agenda. A statement was issued, sending a strong message calling for stimulus to encourage growth, and with Angela Merkel looking under pressure, as the potential issuance of Eurobonds comes back into view. Merkel is looking increasingly isolated, particularly following the G8, caught between having to perform a balancing act between the German voting public, who will be required to underwrite their southern neighbours, and the EU politicians who are insisting on a growth rather than an austerity led package to dig them out of the hole that they are in.
The one thing that everyone seems to agree on is that if Greece does vote for the Leftist anti austerity policies, then it will have pretty catastrophic consequences for both Greece and the rest of Europe and the world through the flow-on effect. Cyprus would most likely be the first domino to fall, given its heavy investment in Greek bonds. Spain is also looking very precariously placed, with its yields heading toward 7%, and its banks continue to suffer heavy withdrawals of deposits. Italy, Portugal and Ireland do not look much healthier. Beyond there, the consequences for China, and thus Australia are obvious.
German 10 Year bunds on the other hand, soared to record highs on Friday, reaching record low yields of just 1.396% as funds flow in, looking for a safe haven. UK Gilts are heading in the same direction, with10-years reaching their lowest ever yields of 1.888% over the last 10 days.
Technically, the Euro looks to have run out of steam on the downside in the very short term. It may well be that we just trade in a choppy sideways range for a few sessions (or even possibly until the June 17 election, which could yet produce another inconclusive result, prolonging the current impasse). The upside currently looks to be the path of least resistance as far as the 1 and 4 hour charts are concerned, although it is hard to become enthusiastic about a meaningful rally. 1.2793, Fridays high, is the first hurdle, followed by 1.2810. Higher up, 1.2883 (38.2%) and 1.2960(50%) provide Fibo objectives, although this looks too far away to come under pressure for the time being.
To the downside, 1.2720 provides a very short term base, and back below here would see a probable return towards Fridays’ 1.2742 low and then 1.2623. Lower down, 1.2575 (23 Aug 10 low) and 1.2505 (13 Jul 10 low) would attract, although I suspect the downside is limited for the coming session.
The next few days look as though they are going to be pretty choppy, so be flexible and keep stops tight. The Euro is opening this morning, Monday, at 1.2770, and a few hours of hanging around here, before a mild test higher would not surprise, but 1.2790/00 may prove tough - should we see it.
The coming week is quite data heavy beginning with US New Home Sales (Mon), and then EU Consumer Confidence (Tues).
