EUR/USD: 1.2450The Euro reached and has so far held the resistance at 1.2525, despite a brief blip to 1.2541, falling back on more negative news from the EU.
The Spanish Treasury Minister remarked that current borrowing costs are closing the door on Spain being able to access credit markets, and that it is technically impossible to rescue Spain from its current crisis. This is a bit of a turnaround from the previous week’s statements of the PM who has been insisting that Spain will be able to muddle through. It did nothing to help the Euro, which dropped 100bp pretty quickly.
A conference call amongst G7 members was unable to throw any light on how to address the problems spreading across the EU, keeping the pressure to the downside.
Cyprus appears to be lining the market up for a bailout after remarks today that suggest that its own banking system is pretty much crippled by investments into the Greek debt markets.
The data was also lining up against the Euro again today, with April Retail Sales falling 1% mm, making it -2.5%yy. German April manufacturing orders fell 1.9% mm.
Today will be an important one for economic data. We have the ECB rate decision, where no change is expected, but Mr. Draghi’s press conference might shake things up a little. We also get EU GDP, German Industrial Production and then the US beige book and a couple of Fed Board members speaking ahead of Bernanke’s testimony to Congress, tomorrow.
Technically, the first Fibo level at 1.2521 (23.6% of 1.3282/1.2288) remains intact, which means that the neckline of the head/shoulders, mentioned on previous occasions remains viable. We did have a very brief blip to 1.2541 at the Tokyo open yesterday, taking out some weak stops, but that was about it. Aside from the 100point sell-off in early Europe though, it has been pretty much a sideways session through the US .
We should not discount further blips to the upside, but the news coming from the EU does not inspire much confidence. Both the one hour and 4 hour chart indicators have gone into neutral mode and thus it may be that we need to tread water around current levels for a while longer.
On the topside, continue to use the session high at 1.2540 as a pivot. I don't see us going above this unless we get some unexpected good news from Europe, which looks pretty unlikely, but which would see the shorts have to scramble for cover, Above here, 1.2575, 1.2600 and 1.2625 would all provide minor levels of resistance, ahead of the next Fibo level of 1.2667.
The downside sees intra-day support, right now, at the session low, 1.2410. Below this, the previous day’s low at 1.2385 will see bids ahead of further minor support at 1.2365. Under here there is not a great deal ahead of Friday’s base of 1.2288.
Longer term I still think we are on target for 1.1875 (8 June 2010 low), and then, as I have previously said, possibly to the Head/Shoulder technical target of 1.0350..
