EUR/USD: 1.2975The Euro continued to push higher on Friday, taking out stops above 1.2900 in thin holiday conditions and never really looked back, closing just below the high of 1.2990. Data from Germany, where the IFO Business Climate unexpectedly improved gave European equities and the Euro a leg up, on top of which, the market is gearing itself up for a positive outcome to the EU meeting this week, which if passed will see the German Bundestag vote on the release of the funds on Friday.
All the rhetoric towards the Greek decision has been positive and the release of the funds seems to be close at hand, but if there is a last minute hitch the Euro is going to get rather ugly on the downside. Greece itself has hinted that the IMF has relaxed its debt-cutting target and that a deal is now possible, although others sources involved in the talks cautioned that the funding gap is rather larger than Greece has been indicating. We shall see on Monday. - although, being the EU, be prepared for further delays!
Also aiding the Euro on Friday was Mario Draghi, who reminded the market that the ECB is ready and waiting to implement the OMT bond buying programme, which - reading between the lines -, was taken as a hint that Spain is slowly but surely heading for a bailout of its own, giving the risk markets a boost.
Technically, the Euro looks as though it wants to test the major downtrend resistance at 1.3025 with both 4 hour and daily momentum suggesting that we have higher levels ahead of us. This level is also the 76.4% retrace of the move down from 1.3139/12.660 and so if seen, should prove to be very strong at the first attempt. Before then though, we need to get above 1.3000, where there will be plenty of sellers, but a positive outcome on the Greek deal would presumably take us straight through and onto the major resistance. Above this would open up a new ballgame and suggest a move towards 1.3083 (22 Oct high) and then to the 17 Oct high at 1.3189 and it could happen rather quickly, if/when the 1.3025 area is overcome, with plenty of stops sure to be triggered on the way up.
If the Euro tops out round here, or at least, ahead of the major resistance, a return lower would target 1.2915 (23.6% of 1.2660/1.2990) and then 1.2865 (38.2%). Right now this looks the least likely option, but the weeklies are completely flat, reflecting the consolidation that we have been in for a while, and thus I would not be getting too carried away with the move to the topside, and 1.3025 could yet contain it.
Use 1.2925/1.3025 as a guide early in the week and trade the range with tight stops either side.
Economic data highlights will include:
M: EU Eco Fin Meeting
T: US Durable Goods Orders, Ben Bernanke Speech, Richmond Fed Manufacturing Index, Beige Book
W: German Consumer Price Index
T: German Unemployment Change, EU Consumer Confidence, Business Climate, US Gross Domestic Product Annualized, Personal Consumption Expenditures Prices, Pending Home Sales, Initial Jobless Claims
F: German Retail Sales, Bundestag vote on Greek aid, EU Unemployment, CPI, US personal Consumption Expenditure
