EUR/USD: 1.3055The Euro has been bid all session, choosing to ignore the late Friday action by Moody's to downgrade credit ratings on the European Stability Mechanism (ESM) and the European Financial Stability Fund (EFSF) and to concentrate instead on the worse than expected economic data, where the US ISM manufacturing index dropped to 49.5 in November, back below 50 and much lower than the expected 51.5, keeping the dollar under pressure. The ongoing concerns over the fiscal debate did little to help and the Euro is currently trading just below session highs.
Earlier in the day, the Euro received a bit of a boost after Spain formally asked for European funds to recapitalize its banking sector, paving the way for cheaper borrowing costs and in other economic data, the EU manufacturing PMI came in at 46.2 in November, which although still in contraction, was not as bad as expected.
Technically, the Euro has now broken the major resistance trendline that we have been watching and headed towards the next resistance at 1.3083 (22 Oct high). A break of this would suggest an acceleration on towards the 17 Oct high at 1.3139 although the growing bearish divergence on the 4 hour charts is warning us of a possible reversal and thus to bring up trailing stops on long positions. Above 1.3140, although doubtful at this point, a continuation of the rally would take us into the congestion area with an immediate target at around 1.3220, but I would not focus on this yet.
The Euro may just keep crawling a bit higher, but as stated, I would imagine that we may have a turn lower, albeit possibly a temporary one, within the overall trend higher - as shown in the daily charts -with the first target coming in at the previous 1.3040 area and then at 1.3000. Below this the first Fibo level is at 1.2985 (23.6% of 1.2660/1.3075) and then at 1.2917 (38.2%). With the dailies picking up increasing positive momentum, these would appear to be buying opportunities to eventually attack the 1.3200 area and above, but I think it might be dangerous to get too long too early.
Today will be relatively quiet from an economic perspective, with the EU PPI being the highlight of the session, and another day of 1.30/1.31 would not surprise.
