EUR/USD: 1.2365
Another day, another disaster for Europe, as the Euro seemingly slides towards an inevitable sticky end, today hitting a two year low and with plenty of downside potential ahead. We are on our way to 1.03, I suspect over the longer term.
Today saw Italian borrowing costs soar to above 6%, while Spanish bonds traded at 6.71% an EU era high. At the same time US 10 Year bonds hit a 60 Year low of 1.6288%.
While the Greek political situation is a major issue, the possibility of Spain dragging Italy and then Portugal, Ireland etc down with it as contagion spreads, is of far greater concern, and will ensure that bounces in the Euro come about only trough bouts of short covering. Given how short the market is now, these could be substantial, but probably short term in nature.
Equity markets had a tough day again (DAX -1.8%, CAC -2.25%, IBEX -2.6). The S+P just finished -1.43%
We have another banana skin ahead of us today, with the Irish vote on whether to stay with the EU austerity programme or not. With the high Irish unemployment rate, there is a wide move to vote no, although polls suggest that a 60% vote will be in favour of sticking with the austerity package.
On the technical side the Euro has fallen to a session low of 1.2361 and the dailies are showing no end in sight to the slide. We are not so far away from the immediate target of 1.2325 and beyond there, as I said yesterday 1.1875 the 8 June 2010 low is looming into sight.
It will not be a straight line affair though, so be nimble. As can be seen on the 4 hour chart, we are making continual new lows in the price action but this is not the case in the MACD’s or RSI’s. Given the divergence, the bounces are likely to be quite sharp, as was seen during today's European session when the Euro moved swiftly from 1.2425 to 1.2475 in just 1 minute. The rally did not last too long before the decline recommenced, but is a sign of how short the market is. Some good news from the EU, should we ever see it, could produce a bigger bounce, so keep stops reasonably tight.
Today, bounces should be limited to 1.2400, possibly 1.2425. Until Europe gets back in, I suspect we have seen the base, so 1.2360 may see some bids, although the lack of any bounce into the NY close is ominous. Below here though would suggest an extension towards the 1.2325 support and beyond there, there is a bit of congestion, but not a great deal to support the Euro until the weekly 50% Fibo pivot at 1.2125 (0.8195/1.6035). If Asia is unable to take us any higher today, the first test from Europe may well be a test on the low 1.23 area.
All up, as long as we can avoid getting caught in the squeezes, we can stay with the downtrend as there is plenty more left in it, and as I said 1.1875 is not now, so far away. This is the medium term view though. In the short term it is necessary to have enough ammunition to take advantage of joining offers into the short covering rallies, rather than being the one actually doing the short covering!
Today sees German Unemployment and Retail Sales and EU CPI. Later we get UA ADP employment data ahead of tomorrow’s NFP/Unemployment.
