EUR/USD: 1.2400Having hit a high in Asia of 1.2442 on Monday, in hope that the ECB will eventually intervene and buy bonds to reduce high Spanish and Italian borrowing costs, the Euro retreated into early Europe, with dealers retaining a more cautious stance. The market appeared to be a little more circumspect than on Friday, as to how effective both EU leaders and the ECB might be in taking appropriate action to resolve the crisis, following Mario Draghi's bullish statement last Thursday. Spanish and Italian bond yields traded at 6.8% and 6% respectively.
There has been increasing concern in the last few days over politicians talking about the possibility of the EU tearing itself apart, which in turn, has brought about plenty of hosing down of such speculation. The Italian PM, Mr Monti seems to have got the ball rolling here, following a weekend interview in Der Spiegel, in which he expressed his concerns of deepening divisions between EU member nations. Germany was quick to note that Merkel does not share such views and several German Ministers have been very quick to rebuke the Italian PM for his comments. These verbal clashes won't change anything overnight, but it certainly will not improve market perception of the lack of unified leadership in the EU, and thus will limit the overall upside potential for the Euro. Right on cue, French President Hollande has apparently suggested today that Italy should request aid from the EU bailout fund in order to protect France from market speculation.
That aside, the euro has had a relatively stable session really and currently sits in the middle of the day's range. The 4 hour charts are approaching overbought territory and there are plenty of technical levels ahead where sellers will be lining up, so I am a little dubious of the Euro making too much headway in the coming session, unless we get a positive statement to make it gap higher. Doubtful.
The neckline is at the day's high of 1.2442, above which 61.8% of 1.2740/1.2042 is at 1.2470 and then 38.2% of 1.3282/1.2042 is at 1.2510. So pretty much as I said yesterday, if we do head higher, I suspect that the 1.2500 area should cap it for the time being. In the longer term, the dailies are still pointing higher and the larger Fibo target remains at 1.2707 (38.2% of 1.4935/1.2042). Thus for the time being the strategy appears to be one of looking for levels to buy dips. Support levels to look at are at 1.2350 (minor) and then 1.2290 (38.2% of 1.2042/1.2442 and minor rising trend line). Below this is the 50% pivot at 1.2242, of the move up from the lows. This looks unlikely to be bothered today.
Overall it looks to be case of finding the dips, but until we break 1.2440 area, I don't think we are going anywhere too far.
Today sees German 10s Bond Auction, Factory orders and Bernanke will be speaking later in the session.
