EUR/USD: 1.2465The Euro finally returned to life today after speculation, that began in Mondays UK Press, that the ECB may act to lower the borrowing costs of both Spain and Italy ,gathered pace. There was little solid fact behind the rally and in thin conditions the Euro was quietly bid through the session.
It began to pick up pace as stop losses helped to push the Euro higher and the market seems to perceive that the ECB may really have something meaningful up its sleeve with regard to acting to assist the peripheral bond markets to lower their yields. We shall see.
We now have the FOMC minutes to look forward to later today, although I am not sure that they will produce anything significant to move the market ahead of Ben Bernanke's testimony at Jackson Hole on 31st August. When this comes about, look for Bernanke to disappoint the market by not announcing QE3 and the beginnings of a decent dollar rally/ stock market pull back.
Later this week the main focus will be on the round robin of meetings to discuss the Greek membership of the EU. French President Hollande and Angela Merkel will meet on Thursday, and then Greek PM Antonis Samaras will arrive in Berlin and will meet with each of them.
From a technical perspective, the Euro has taken out a few short term resistance levels and has headed toward, but not broken, the top side if the recent channel.
The 4 hour momentum indicators do point higher and suggest that there are further gains potentially ahead. However the 1 hour charts are currently little overbought and the dailies remain flat and so a bit of caution is warranted up here, and I doubt that we are going above the day's highs at 1.2487 in the next few hours. Fibo resistance lies at 1. 2472 (61.8% of 1.2742/1.2042) and this may act as a cap through Asia, allowing the short term charts to unwind. Later on, further progress to the topside may be seen and will find hurdles at the top of the channel, currently at 1.2525, and then 1.2574 (76.4%).
The downside will now see stops at 1.2440 and then at 1.2380, while the base of the channel is now at 1.2300..
Right now I would look for 1.2440/90 to cover it, with the chance to expand that to 1.2400/1.2550 once Europe/US take over. Overall the charts look as though as it is the topside that may come under pressure and dips should see decent demand.
Economic data includes US existing home sales.
