EUR/USD: 1.2595
It had to happen sooner or later that the Euro would take out the long held low of 1.2623. Today was the day, caused largely by the fact that it appears that the market is being softened up, through the political rhetoric, for Greece to leave the Euro. Yesterday’s statement by former Greek PM Papademos got the ball rolling, although politicians in Athens deny that the EU has been told to prepare for an imminent exit. Even the Bundesbank got involved today, stating that a Greek exit would be manageable. So, confusion rules, and nothing new has really happened, but the real concern remains the possibility of the domino effect overflowing to the larger economies, particularly Spain and Italy.
The EU Heads of State meeting has taken place, with the usual familiar story of a lack of any solution to the issue. It appears there will be no euro bonds on offer at any time in the near future, or, ever, if Angela Merkel continues to have her way.
Germany today sold €4.56bn of two-year bonds at just 0.07%. Free money really, reflecting the demand for a safe haven from all the confusion.
Equities had another tough day. The DAX finished -2.33%, CAC -2.6%. In the US, there has been a bit of a recovery which has helped the currencies regain a little lost ground. The S+P finally closed +0.17% on the day.
Technically, now that 1.2623 has given way, we have so far been down to 1.2545, taking out the 76.4% support of 1.1875/1.4938 at 1.2598. We are sitting at this level right now, but it looks as though the downside could well be accelerating, having made a new low. The next target would be the 13 July 2010 low at 1.2505. Beyond this, 61.8% of 1.4246 to 1.2625 from 1.3486 at 1.2484 would attract. In the bigger picture we could well be looking at a move back to 4 June low at 1.1875.
Check out the daily chart below. It looks like a massive Head/Shoulders to me, and if so, a break of the neckline would lead to a target of 1.0500!!
Rallies to the topside should now meet good sellers on a return to 1.2625, the first Fibo resistance is at 1.2717 (23.6% of 1.3282/1.2545) and trendline resistance is currently at 1.2745.
The hourly charts are pretty oversold at present, so an imminent drive to lower levels looks unlikely in the short term. A squeeze back to 1.2625 would not really surprise, but if we do see any move higher, I suspect it will be pretty short lived as the 4 hourlies and the dailies still point quite aggressively lower.
It is a big day for data ahead so it could become a bit hectic later on.Keep Stops Tight!
German GDP, Retail Sales, PMI, IFO
EU PMI
US Jobless Claims, Durable Goods
