EUR/USD: 1.2235
Risk assets have been sold off following the FOMC meeting at which the Fed said that they were open to the idea of further economic stimulus but only if the data coming out of the US economy continues to weaken. The Euro immediately sold off to make another 2 year low at 1.2212 and it is not too far from that right now. Elsewhere in the minutes, it was noted that there is concern about the possibility of a significant slowdown in China.
Earlier in the day, the US Treasury sold 10 Year notes at a record low yield 1.459%, way below the previous 1.622%, and indicating how risk averse the market is.
In Europe, the Euro had earlier rallied when the PM unveiled his new austerity measures that included EUR 65 bio of spending cuts which sparked major public unrest in Madrid. The cuts will include a 3% rise in sales tax, cuts in ministerial budgets and the loss on unemployment benefits amongst other things. The markets liked it, but the cost of living in Spain just got more expensive, which in line with the high unemployment levels does not paint a pretty picture for the economy in the coming year.
All in all today, the Euro despite making new lows, has so far remained within 1.22/1.23 although the pressure looks to remain to the downside. As with yesterday, the 4 hour charts continue to show divergence as the prise declines, suggesting that the price action will remain choppy and the odd nasty short squeeze should be expected along the way.
The points to watch today are at 1.2212 (the current low), 1.2200 (where there will be some option barrier protection and should see some bids just ahead of it), and then the descending trendline support, currently at 1.2185. The longer term targets remain unchanged and the level that should attract the Euro is at the 61.8% projection of 1.3282 to 1.2284 from 1.2747 at 1.2133. This level also acts as 50 % of the major move higher from 0.8211/1.6033, and should prove strong. The eventual target for this move remains 1.1875.
On the topside, today's high at 1.2296 will see short term resistance, above which, yesterday's peak of 1.2334, and then 1.2360 (minor) and 1.2405, where the Euro bottomed before bouncing last Wednesday will all see sellers.
The economic highlight will be the ECB monthly report and Draghis speech. In the US, there is the 30year bond auction to look forward to but little else apart from some Fed board members speaking.
