EUR/USD: 1.2315
Despite there being plenty of newsworthy events going on today, the Euro has managed a 70 point range, squeezing slowly up off its lows. The EU Finance ministers have commenced their meeting in Brussels to attempt to forge an action plan following the recent EU Leader meeting. They have plenty to discuss, including the possibility of a new agency within the ECB, for supervising 25 of Eurozone’s largest banks. The immediate focus is on the Spanish Bank bailout. The EU Ministers, during the European session granted the Spanish government an additional year to meet the 3% budget deficit target, which helped the Euro to squeeze back above 1.2300. It did not do anything for bond yields though with the 10 Years getting back to 7.1%, while Italian yields moved to 6.1%. This compares to German yields, where a 6 month auction actually saw negative interest rates – i.e. investors are paying the German government to invest; at a rate of -0.0344%, compared with +0.007% at the previous auction in June.
Elsewhere, the Bank of France has predicted that the economy most likely shrank by 0.1% during the 2nd quarter and President Hollande described the France as vulnerable to its levels of debt servicing.
In Athens the new government passed a vote of confidence to push through structural reforms but Greece will be reiterating at the meeting in Brussels that it cannot meet its ongoing debt repayments given the current bailout requirements.
Equities had a soft day on worries about global growth, following yesterdays Chinas soft CPI reading (2.2%). The DAX closed -0.35%, CAC -0.38%, S+P -.16%.
The ECBs Mario Draghi has been speaking during the NY session, reiterating his previous comments that downside risks still remain and that further interest rate cuts may be required if the economic data does not improve.
Technically there is little change from yesterday.
In the short term, the corrective activity off the lows looks as though it could continue for a while longer. The hourlies are pretty flat, although the 4 hourlies have now turned a bit higher and a squeeze to 1.2360 and then at 1.2405, where the Euro bottomed before bouncing last Wednesday looks possible. Above this the first Fibo level to watch is at 1.2491 (23.6% of 1.3282/1.2255). As I said yesterday, given the importance that 1.2520 has assumed in acting as a pivot over the last couple of months do not discount a return to this level, although, if seen again, it should be fairly toppish.
Below today’s low (1.2255) would target the 61.8% projection of 1.3282 to 1.2284 from 1.2747 at 1.2133, with the 100% extension being at 1.1745. Before then though, the base of the down-channel is currently at 1.1995 and falling, but should provide some support before we reach the major target for this decline at 1.1875 (June 2010 low).
Today look for 1.2255/1.2355 as an initial guide but look out later for the China Trade Balance in what is otherwise a relatively quiet economic day. More headlines from the meeting in Brussels may liven it up in the European session..
