The early optimism over the Spanish banking deal did not last long. The high of the day was seen in very early Asian trade and the Euro headed slowly lower throughout the session, eventually filling in the gap from Friday’s closing price at 1.2515. The realities of lending Spain €100bn are beginning to set in, and the attached obligations to the loan increasingly weighed on market sentiment throughout the day. Not helping was the Fitch decision to downgrade Spain’s 2 largest banks. The upside for the Euro looks somewhat limited from here now, given the increasing focus on the weekend Greek election and the odds of another Asian Monday weekly high looks very possible. Beyond the election, the reality that Cyprus may be the next nation to line up for a bailout will do nothing to help sentiment.
The early optimism that carried into Asian equity markets, initially fed through to the European bourses, which opened up around 1.5% / 2%.
That did not last long, as they closed mostly flat (DAX+0.17% CAC -0.29%) and the S+P finished down by 1.25%
On the charts, the Euro traded absolutely perfectly to 1.2667, the 38.2% Fibo target of 1.3283/1.2286. If we are going to make any upside progress, this needs to be overcome, and before then we now have minor Fibo resistance at 1.2525, 1.2555 and 1.2600 from the move down on the day from 1.2667.
The downside sees initial support, close by at 1.2470, which currently acts as the base of the short term rising channel, and may hold through Asian trade, (although that is looking increasingly unlikely as we approach it right now, and looking heavy). The minor divergence on the 4 hour chart MACDs suggest that it should come under pressure and if it does give way, a decline to 1.2423, minor support and then towards 1.2380 looks likely. Below here would see an acceleration to last week’s 1.2280 low, but is unlikely for the time being.
Overall it looks likely to be pretty choppy for the next few sessions and I would not be getting too married to any particular position, long or short,
For the Asian session I suspect 1.2455/1.2500 may well cover it.
In the longer term, a break below 1.2288 (1 June low) would lead to 1.2147 (28 June 10 low). This may not be the direction early in the week, but I am pretty sure we will see it at some stage, on our way to 1.1875 (8 June 2010 low), and then, as I have previously said possibly to 1.0350 (H/S objective)...