EUR/USD: 1.2980The Euro squeezed higher for much of the first part of the session on Friday, care of the FT article that the EU and Spain are discussing terms to facilitate a Spanish aid request. The German Finance Minister, Scheuble, then doused water on a bailout by saying that Spain does not need one, ensuring that the rally ran out of steam as NY got going and we saw a normal Friday session of squaring up risk positions, with the Euro declining from a 1.3047 high to close at 1.2978.
While we remain in this limbo, as Spain dithers on asking for assistance from the EU and not liking the tough austerity measure that would inevitably be imposed, the Euro is going to chop around aimlessly and without much direction. If there is a request from Madrid, we are going to see a kneejerk Euro rally, otherwise it looks as though we may be in for a slow, choppy, drift lower.
Elsewhere in the EU, a Reuters report detailed that the Troika report on Greece will not be released until after the US election, which means that the issue of whether Greece will receive the next tranche of their bailout funds from the EU will stay on the backburner for the time being, but could well still turn into another Euro negative as we approach Christmas. Over the weekend, der Speigel have reported that Greece faces a budget shortfall of about Eur 20 bio to satisfy the conditions for more emergency aid. This is almost double previous estimates and not an auspicious outlook, which may weigh on the Euro early in the week.
The immediate points of interest are at 1.2919 (Thursday low) / 1.3047 (Friday high) and early in the week this may well contain the range. Within that, an Asian range of 1.2930/1.3000 may get us off to start the week, with the short term oscillators not particularly leaning in either direction, although the news coming out of Europe looks as though the early pressure will be on the Euro.
On the downside below 1.2900, further support will be found at 1.2851 (13 Sept low), 1.2835 (50% pivot of 1.2498/1.3171) and at 1.2755 (61.8%).
The points to watch on the topside, above 1.3047 are at 1.3084 (19 Aug high), and then the recent rally high of 1.3171.
In the longer term, the major trendline resistance is currently at 1.3203, and with the central banks all having fired their bullets it would appear that this is going to be extremely tough to break. Thus overall, look for a choppy move lower, with the good chance of a nasty spike rally if/when Spain bow to the inevitable and ask for help. If/When this rally takes place, I suspect a classic case of buy-the-rumour/sell-the-fact will unfold and any Euro euphoria will be pretty short lived before a return to the downside.
Right now, expect more consolidation, with a mild downside bias and with conditions to continue to be choppy.
Economic highlights this week include:
M; German IFO,
T; German Consumer Confidence, Merkel/Draghi meeting, Draghi speech, US Consumer Confidence, US Case Schiller Index , Geithner speech
W; German Retail sales, CPI , US New Home sales
T; German Unemployment, EU consumer confidence, US Durable Goods, GDP,PPI
F; US Personal Consumption, Chicago PMI, R/M Consumer sentiment
