EUR/USD: 1.2150
Although the Euro did precious little, as is the norm, until Europe got going, when the ECB's Nowotny indicated the possibility for giving Europe's permanent rescue fund a banking licence which would allow it to borrow unlimited ECB money in order to buy up the debt of nations such as Spain. It all sounds like putting off the dreaded day of realisation that none of this is working, but it had the effect of sending the shorts scurrying for cover in a bit of a hurry. The ongoing stream of poor economic news coming out of Europe though, again capped the topside. The German IFO Business Climate Index dropped for the third month in a row to 103.3, against expectations of 104.5 and the IFO's chief economist suggested that economic uncertainty is rising and will continue to do so.
The usual saga of bad news from Spain saw bond yields spike again to a high of 7.71% although by the end of the session they were back at 7.25%. With more regions looking as though they will come cap in hand to the government, the greater the concern becomes over how Spain will fund itself, with the increasing likelihood of a full blown bailout being required from the EU.
So with the poor data today both out of Germany and the EU the market is now yet again focusing on the chances of further monetary easing and we may not have to wait too long to find out with the FOMC meeting next Tuesday/Wednesday. Today's June US New Home Sales data fell by 8.4% which kept a lid on sentiment and the S+P finished pretty much flat.
Greece is also keeping the market on its toes, with the Troika currently in Athens to decide whether the next tranche of the bailout package is going to be made available, but the comments so far are not looking constructive. No result here is expected pre September.
So we have got the bounce that we were looking for, based on the building divergence. The short term indicators hint that there is further upside yet, and a test of 1.2188 (23.6% of 1.2692/1.2041) looks very possible, given that it is only 30 points away. Above this the downtrend line lies at 1.2200 and should see some good sellers. Above this though, I do not see too much until 1.2285 (38.2%), although a bit of congestion looks possible around 1.2235. The upside for the Euro is always precarious, so tread with care as the current strength could prove to be somewhat short lived.
On the downside, the picture remains unchanged. We will encounter bids at the previous lows at around 1.2110, 1.2080, 1.2065 and 1.2042. Below here 1.2000 remains solid and I don't think we are going here today. If we do, below around 1.1980 would see an acceleration south towards 1.1875, but don't hold your breath.
Today's action comes care of German Consumer Confidence and then more importantly US Durable goods.
For now I suspect 1.2130/1.2200 should cover it with a mild bias to the topside.
