EUR/USD: 1.2563The Euro rose to meet the resistance levels and currently sits right on the top of the channel as Angela Merkel urged Greece to stick to the path of reform. Merkel and French president, Hollande, are meeting today/tomorrow to discuss the situation, but are unlikely to give up too much ground, with Merkel repeatedly saying that Greece has to stick by the rules of the austerity agreement.
The Euro received assistance today following a report that Spain is negotiating with the the EU over conditions for international aid, although the country has actually, yet to make a final decision on whether to request a bailout. The Euro remains well bid on the continuing hope that the ECB will soon act to lower both Spanish and Italian bond yields although it did not do a great deal of good today, as Spanish yields headed higher to 6.4% and to a spread of 5% over German yields.
The DXY finally made it to the 81.20 (low 81.22) support level that we have been watching for quite a while, before a mild bounce to 81.40. This should remain intact today I think and therefore any further dollar weakness should be limited in the upcoming session.
The data today was mixed, with the Chinese Mfg PMI at a 9 month low, but later in Europe, the French figure was better than expected, while the overall EU figure was pretty much unchanged.
Equity markets were not overly impressed today following Bullard's comments, hosing down QE3 expectations, and the DAX and Estoxx50 both closed down 0.97%, while the S+P headed back to 1402, down 0.8%.
Overall, although the Euro remains bid, the range has been pretty tight and the hourly charts are showing divergence, so I am dubious that we are going to make too much further headway to the topside in the coming session. Although we have briefly been to 1.2588, the resistance around here is quite strong so it would not surprise me to see the Euro run out of steam ahead of 1.2600, for a return towards 1.2500. The first support is the minor rising trendline, currently at around 1.2525 and below this the first Fibo support is at 1.2465 (23.6% of 1.2042/1.2588).
On the topside, if we can break above 1.2600. the levels to watch are at 1.2620 (100 DMA) and then 1.2670 (long term channel top) and 1.2720 (23.6% of 1.4935/1.2042). Doubtful.
I suspect we are in for a range bound day below 1.2600 today, and with little data out, - US Durable goods being the highlight, - it may be a quiet run into the weekend as the market focuses on the ongoing political talks in Europe. Lets hope so!
