EUR/USD: 1.3120Moody's got the ball rolling yesterday after affirming Spain's credit rating, rather than dropping it to junk status - as was expected - and put a good bid under the Euro that has lasted pretty much ever since. Not only that, it had the effect of dropping Spanish 10 year yields to 5.5%, the lowest level in about 7 months. The Moody's rating is contingent on Spain implementing fiscal reforms and on the ECB buying the bonds of peripheral euro zone countries once they have finally asked for a bailout. The timing of this remains uncertain but it looks like November, although we have the EU summit taking place today/tomorrow in Brussels, so beware of any soundbites coming from there. Nothing is expected to be announced tomorrow with regards to Spain, or Greece come to that, where hopes of progress in addressing Greece's problems at the summit remain low.
German official comments backed this up today and were doubtful of any substantial progression on the subject of Greece at the summit.
Germany has also urged the EU to work more closely together on economic policy with a new commissioner who will have power of veto over national budgets and fiscal policy within the EU. It wants closer discipline over the more peripheral nations and naturally those in need of assistance are not quite so keen on all this, so it will make for some interesting conversations in Brussels, although no real decisions are expected on EMU at this meeting - again!
Technically, we have come to a halt so far at 1.3140, where, as we have pointed out over the last couple of days, good sellers are gathered. This is the level at which the major downtrend resistance currently lies, commencing from 1.4939, 4 May '11 and so is very strong. The sellers remain in charge at this level, but if taken out, we would see a quick move to 1.3171 (17 Sept high). Beyond there, it looks as though the Euro would make an approach on 1.3283 (1 May high) 1.3346 (27 Mar high) and then possibly towards 1.3479 (27 Feb high), and which is also the next major Fibo point (50% pivot of 1.4939/1.2042).
The downside now sees buyers close by at 1.3100 and more substantially below here at 1.3065. below this there are Fibo supports from the recent run higher from 1.2825, at 1.3065 (38.2%), and 1.2982 (50%), but which looks out of reach at present.
The 4 hourlies point to the higher ground still but are in danger of becoming overbought while the dailies remain a bit inconclusive. Given the doubts of any real progress from the EU summit, I suspect the market may be in danger of having got ahead of itself, and I would not be surprised to see a bit of profit taking, so best bet is to stay flexible and keep stops tight
We should see little from Asia this morning, although there is a lot of Chinese data out later. For now look for 1.3090/1.3140 to cover it until Europe gets going..
