EUR/USD: 1.3020The euro eased back against the US$ on Friday, retreating from the top of its recent trading range, as a lack of any positive news from the EU summit or any real progress on a Spanish bailout request weighed on markets. The currencies did not actually fare too badly given that it was a pretty poor session for equities, particularly from the US, where the Nasdaq fell by 2.2% after the poor earnings reports from the tech sector.
The EU Summit did not have Spain or Greece very high on the agenda but concentrated on working towards a single banking regulator for the EU. It was agreed that all 6000 banks inside Eurozone would come under ECB supervision, with day-to-day oversight delegated to national authorities. Someone is going to be very busy!
The Euro was pressured after Spanish Prime Minister Rajoy reiterated that no decision has been made on seeking aid yet, and that he feels under no pressure to ask for a bailout, so the standoff looks as though it will continue to be the main theme for sessions to come or until some resolution is reached. The longer all this goes on, the greater will be the pressure on the Euro, so the next couple of weeks don't look as though they are going to be easy to trade. The pressure looks likely to remain lower, but with the continual chance of a nasty spike higher whenever rumours do the rounds that a bailout package is imminent. It is beginning to appear that Spain will do nothing until it is too late, only acting once the bond markets have pushed the 10 Year yields back to unsustainable levels for Spain to borrow at. That all remains to be seen.
Technically, as can be seen on the chart, it appears that we are going to trade in an increasingly tight range, until a break above/below resistance support takes us in one direction or the other.
The downside has bids at 1.3000 that look as though they could come under pressure pretty early in the week and a break would see a decline towards minor Fibo support at 1.2945 (61.8% of 1.2825/1.3139) and possibly on to 1.2900 (76.4%). Below here would suggest a test of the rising trendline support at 1.2850 and then the 200DMA at 1.2815 which has held pretty well recently above the 1 Oct low at 1.2802.
The upside sees a return to Friday's initial support - now resistance - at 1.3065 and then on to 1.3100 and the recent 1.3140 high, which is also 38.2% of 1.4939/1.2042 and should prove very strong. A break would see a return towards the 17 Sept 1.3171 high and then to 1.3266,1.3368 and 1.3480, all of which have acted as highs between February and April, although it looks unlikely that they will come under pressure this week.
Stay neutral for now, without getting married to any particular view and for Monday use 1.3050/1.2980 as an early guide with a mild downside bias.
Watch out for the FOMC meeting on Wednesday, although no change is expected. Elsewhere from the US this week, we get the final Presidential Debate, with the Chinese trade relationship, likely to be on the agenda and more earnings data.
Economic data this week includes:
T: US Presidential Debate.
W: German Flash Mfg, Services PMI, IFO Business Climate Survey, US Flash Mfg PMI, New Home Sales, FOMC IR Decision/Press Conference
T: German Retail Sales, US Durable Goods, Jobless Claims
F: German Consumer Confidence, US GDP
