EUR/USD: 1.2565The Euro maintained a bid tone early in the session, taking out stops above 1.2610 in Asia, as speculation mounted that the ECB are ready to act on Mario Draghi's comments of a couple of weeks ago, and commence buying peripheral EU bonds in order to reduce the borrowing costs of Spain and Italy. These comments have been backed up over the last 24 hours after he commented that central bank buying of sovereign bonds of up to 3 years maturity did not constititute state aid, and gave the market further hope that the ECB are ready to act. However the risk of disappointment that the ECB will not live up to expectations limited the upside for the Euro and it has since drifted a little lower to trade marginally weaker over the course of the session. No real harm has been done though and the market is now likely to remain on hold until Mr Draghi speaks at the ECB meeting tomorrow. Reading between the lines, it sounds as though he is preparing the market for some economic stimulus by buying bonds of up to 3 years duration. Whether this is fully priced in remains to be seen, but it is a little surprising to me that the Euro has not been able to take any advantage of these comments.
Elsewhere today, the weaker than expected US ISM manufacturing data led to the dollar maintaining its ground as risk markets weakened a little and helped ensure that the upside for the Euro remained limited below last week's 1.2637 high.
Stocks today generally closed a bit lower with the Dax -1.17%, EStoxx50 -1.08% and the S+P -0.12%
Technically little has changed of the course of the session.
Short term support is now to be seen at the rising trendline, currently at 1.2550 and then again at 1.2498 (23.6% of 1.2042/1.22637). Below this is the base of the rising wedge, currently at 1.2435 and then1.2400 (50% pivot of 1.2742/1.2042) comes into play but looks like being untouched today.
On the topside, sellers will be seen as we approach the recent high at 1.2637, which is also major trendline resistance. A break would lead to the top of the wedge, currently at 1.2670 and then onto to Fibo resistance at 1.2720 (23.6% of 1.4935/1.2042).
Really, I don't see an awful lot happening until the Central Bank meetings, although we do get EU retail sales that may provide some volatility, and I would imagine we have another 1.25/1.26 session ahead of us. If anything the 4 hour charts look to be running out of a little steam and it would not surprise to see a test of the downside, although I don't think we are going too far in either direction and 1.25 should hold it.
