EUR/USD: 1.2950The Euro had a pretty quiet finish to the week, finishing at 1.2950 having reached 1.2991 before retreating after a story did the rounds that the new ESM bailout fund may not have enough in the kitty to cover Spain - let alone Italy. Further safe haven buying of dollars took place as the market turned one eye to the increasing tension between Syria and Turkey.
Elsewhere, the waiting game over Spain continues and thus it looks as though we have more consolidation ahead of us, possibly until the EC meeting on Thursday/Friday, so I would not expect the Euro to do a great deal until then. If Spain does make a decision we should see a spike higher in the Euro as borrowing costs decline, but the longer they leave it, - possibly until they are forced into doing so by the marketplace pushing bond yields higher -, the more priced in any bailout will be and the less positive the likely outcome for the Euro. Personally, I have a hard time seeing anything positive at all about any of this that could make the Euro go higher, but if that is what the market thinks, then there is no point in arguing. Any knee-jerk rally, will I suspect, offer the best sell opportunity that we are likely to get in quite a while, but that remains to be seen.
In the meantime we sit and wait. There are plenty of factors capping the Euro's topside, with Greece remaining close to the centre of attention. IMF chief Christine Lagarde's suggestion at last weeks IMF meeting in Tokyo, that Greece and Spain should be given more time to repay their debt, has not gone down well in Germany and will do little to ease the tensions within the EU.
Equally, and dollar strength somewhat appears limited by the approaching, so called, fiscal cliff of tax rises/spending cuts, so it would appear that we are going nowhere too far in either direction in the coming week.
Technically, little has changed from Fridays update. In the short term, Fridays 1.2920 low should provide a bit of a base. More importantly, the Euro remains above the 200 DMA (currently 1.2832) and this remains the initial solid support above the longer term rising trendline from the 1.2042 low, now at 1.2818, and above the recent 1.2802 low. 1.2800/30, should therefore be pretty solid at the first attempt, if we get there. A break would suggest further declines to 1.2740 (38.2% of 1.2042/1.3171), which , if seen should also prove very strong at the first attempt, but a below here would suggest a steeper decline to the low 1.26 level where 1.2610/40 area would act as a base. Looking doubtful, unless the EC meeting turns into a messy affair.
The upside has seen the Euro squeeze to 1.2991 on Friday, before falling short ahead of 1.3000, above which stops are said to exist, ahead of good sellers supposedly lined up in the 1.3040 area. Above this would see a return towards the recent 1.3071 high and then to the major long term down trend resistance at 1.3140, which is also 38.2% of 1.4939/1.2042 and should prove very strong.
The 1 hour and daily indicators both point lower, although the 4 hour charts are flat and therefore I would expect a reasonably quiet start to the week, but with the chance of a mild retest to the downside. The China data should be watched and evidence of further weakness would probably add to the pressure, but 1.2900/90 looks likely to cover it early on.
Economic Highlights this week include:
M: US Retail sales, NY Empire State Mfg Index, Business Inventories.
T: EU CPI, Trade Balance, ZEW Survey, US CPI, Long Term TIC Flows, IP, Capacity Utilization.
W: US Presidential Debate, Housing starts, Building Permits.
T: European Council Meeting, US Jobless Claims, Philly Fed Mfg Survey.
F: European Council Meeting,, EU C/Acc, German PPI, US Existing Home Sales.
