EUR/USD: 1.2930The Euro was soft from the outset on Monday given the ongoing uncertainty over Spain and Greece and was not helped once the German IFO business climate index was released, coming in at 101.4, a fair bit weaker than expected. On top of this the IMF have given warning that they are about to release their global growth outlook and that they will be lower than the previous, already soft expectations. So it was pretty much a day of exiting risk positions and back to the safe haven of the US dollar.
The pressure looks likely to remain until something more affirmative emanates from Madrid where it is expected that the draft budget plan for 2013 will be released later this week, outlining new, austere structural reforms as well as the results of the latest audit of the Spanish banks, and which could well be the catalyst for the long-awaited full sovereign bailout. This would see a Euro rally, although possibly rather short lived given the market gossip that Moody's is about to downgrade Spanish sovereign debt to junk status.
Greece is not much better. The release of the Troika report on the Greek debt situation has now been delayed until after the US election and so the never ending story continues, with Nov 6 the latest favoured date. The likelihood of Greece finally leaving the Euro never seems too far away, but needs a politician who is actually willing to pull the trigger. It will happen eventually I think, but the will-power is still not there to do so.
Technically , the jury is still out as to whether the Euro has topped out at 1.3171, or whether we are merely consolidating/correcting, before another run higher. Much will depend on how the market views any Spanish bailout if/when it comes.
For the time being, on the downside, having turned mildly higher from the 1.2890 lows, the hourlies are picking up a little steam and the early week shorts look as though they may be squeezed a little more. The 4 hour charts are not really decisive and the dailies are correcting from the recent run higher in the Euro. Thus the overall consolidation looks likely to continue. Below 1.2890, bids will congregate at 1.2851 (13 Sept low), 1.2835 (50% pivot of 1.2498/1.3171) and then at 1.2755 (61.8%) and 1.2741 (38.2% of 1.2042/1.3171).
The points to watch on the topside, are now at 1.2955 (23.6% of 1.3171/1.2042) and 1.2996 (38.2%). Above Fridays 1.3047 high, will be 1.3084 (19 Aug high), and then the recent rally high of 1.3171, which is where the major daily downtrend resistance currently lies.
There is a fair bit of activity out today to drive possible volatility, but for the time being use 1.2880/1.2980 as a guide.
Economic Data
T; German Consumer Confidence, Merkel/Draghi meeting, Draghi speech, US Consumer Confidence, US Case Schiller Index , Geithner speech
