EUR/USD: 1.2680
The Euro retraced lower, losing most of the gains of the last few days as concerns mount about the prospect of any significant progress at the EU heads of state meeting later today. The French President Hollande, backed by Italy and Spain, is expected to call for Eurobonds to be introduced. Germany is unlikely to give way on this, given their own AAA rating, they would not wish to be involved in bonds with a lesser status, and anyway, does not want to promote a growth strategy at all, preferring to go along the road of austerity.
Although the Euro is just above the days lows, currently trading at 1.2680, European equity markets had another positive day (DAX +1.65%, CAC +1.88%), in the hope that there may be a positive outcome from the meeting. However, US equities fell into negative territory towards the close, before scraping over the line to close +0.05%. We shall have to wait and see.
At the NY close, the former Greek PM Papademos has helpfully made an announcement that Greece is preparing for an exit from the Euro, which has seen the Euro just spike lower to 1.2657 before making a partial recovery.
Elsewhere today, the OECD has warned that urgent action is required if the EU crisis is not to spread to threaten the global economy and that the outcome of a Greek exit from the Euro is being “underestimated by most observers”. The OECD also, today forecast 2012 GDP growth to be down to -0.1% from +0.2%, while US Growth is expected to be more positive at 2.4% in 2012, up from Novembers estimation of 2.0% , and 2.6% for 2013. Global growth is estimated to be 3.4% in 2012 then 4.2% in 2013.
In US data, Existing Home Sales increased 3.4pc to an annual rate of 4.62m units last month, the highest since May 2010 and gave the markets a bit of an early boost.
The charts suggest that the 1.2623 target could soon come under pressure, but until then some consolidative action is likely and so a neutral stance is probably required in Asia.
The upside yesterday, managed to take out the initial stops above 1.2800, trading to 1.2825 but was unable to progress any further. We need to regain that ground, and if it can be overcome, the next target of importance remains at 1.2883 (38.2%), followed by the minor gap at 1.2915 and 1.2960(50%) This still looks highly unlikely for the time being.
The hourly charts suggest that we actually appear more likely to take another look at levels sub 1.2680. The 4 hours are back to trying to turn lower again from neutral, so we could eventually be in for a bit of a rough session for the Euro..
To the downside, 1.2670/80 may provide minor support for the next few hours, but back below the days low would see a return towards Fridays’ 1.2642 low and then 1.2623. Lower down, 1.2575 (23 Aug 10 low) and 1.2505 (13 Jul 10 low) would attract.
For the coming session use 1.2640/1.2720 as a guide and then follow the EU meeting closely. The indicators are not looking positive though.
