EUR/USD: 1.2915Spain finally delivered its much anticipated budget today, unveiling Eur40bio of spending cuts over 2013 and has been seen as Euro-positive by the market as it broke mildly back above 1.2900 in generally subdued trade, with much of the contents leaked before the announcement.
The budget release came after the Euro had hit its 1.2828 low, weighed down by further poor economic news led by German unemployment which rose for the 6th straight month to 2.91 million. Adding to the pressure were weaker than expected EU economic sentiment and low Spanish bank deposits, which fell at a much sharper rate than expected, -1.1% in August, the lowest level since 2008.
Across the pond, the data was no better and saw US Durable Goods orders fell sharply by -13.2% in August against expectation of -5% and ensured that the US dollar was not going to have it all its own way during the session. Elsewhere, US Q2 GDP was revised down to 1.3% annualized, below expectation of 1.7% and Pending Home Sales fell by 2.6% in August.
In other news Greece's international lenders continue to debate as to how to respond to its debt crisis and the situation there should help limit the upside for the Euro in the coming few weeks. Moody's are expected to review of Spain's ratings this week with a good chance of Spain being downgraded to junk status, and which would increase the borrowing costs and could therefore be the catalyst for a full sovereign bailout.
So technically the Euro made a marginal new low in the resent correction before the bounce after the European close but managed to hold above the 200DMA at 1.2820 and has so far avoided setting off the large stops said to be placed just below here. The hourly momentum has begun to look a little more positive and further short term gains look possible, although the longer term charts are a little bit mixed and it could be that we are in for a choppy session. The Euro has broken above the top of the recent descending channel and is currently just below the highs of the day(1.2927) and sits on the 38.2% Fibo support-turned resistance of the run higher from 1.2501/1.3171. A break would see further progress towards 1.2960 (38.2% of 1.3171/1.2827) and then to 1.3000. Above here would lead to Fridays 1.3047 high and 1.3084 (19 Aug high), and then the recent rally high of 1.3171.
The downside would see a return to 1.2870 and then to the day's lows at 1.2827.
The longer term charts continue to point a bit lower and a breach of 1.2815 would suggest further declines towards the channel base at 1.2755 that currently coincides with the 61.8% support of 1.2498/1.3171), below which lies 1.2741 (38.2% of 1.2042/1.3171).
The market looks a little directionless today and it could be a choppy session. I am fairly neutral at current levels. We have the results of the Spanish banking stress tests to look forward to later on, which won't make for pretty reading and could see renewed pressure on the Euro.
Otherwise it will be the US Personal Consumption Expenditure that will provide the highlight in what may be a rather directionless session, with a mildly higher bias to squeeze out the weak shorts.
