EUR/USD: 1.2875Financial markets have generally acted negatively to the news coming out of Cyprus following the tax levy imposed as part of the EU bailout package, extending the previous day's decline, with traders remaining concerned about the possibility of a flow-on effect to other peripheral EU nations. The news that Cyprus has rejected the terms of the bailout package came as little surprise and has actually seen the Euro bounce a little as traders have taken profit, but in the bigger picture, the whole bailout package is now in doubt and will increase concerns about where this leaves the debt crisis in the EU.
Naturally, German bunds have today seen good demand, sending yields lower, while the Club Med yields continue to rise as traders flock to safety.
Earlier in the session, the German ZEW economic sentiment survey came in slightly better than expected (+48.5 against +48 exp), the highest level since April 2010, but got rather lost in the news and had little effect on the Euro which currently trades 40 points above the day's lows.
We have now reached the support levels that, for the last couple of weeks, we have been suggesting that short positions should be bought back in order to book some profits. Although I have done so with my own position today, at 1.2850, it has to be said that the Euro looks pretty awful on the charts, and I suspect we could eventually be heading a fair bit lower. It actually looks as though this move could really be about to accelerate and the break below the 200DMA, last seen in November, is not a good sign.
The daily close will be right on the 200 DMA and so it could be that we gyrate around here for a couple of sessions , but a break lower would head towards 1.2800 and below, towards the next Fibo support at 1.2680 (61.8% of 1.2042/1.3710), with not too much support to be foned in between. Potentially we can head a lot lower than this and a longer term target of 1.2000 or thereabouts cannot be ruled out
Nearer home, today, the topside will now see sellers at the previous support at 1.2915 and above there at 1.3000. The 4 hour charts are not currently supportive of a move higher, but there could be a short squeeze and the gap to Friday's close has yet to be filled, so while I think the Euro is headed lower, we need to allow for room to sell into strength.
I have doubts that the gap is going to be closed any time soon though, and from the charts it looks to me as though levels sub 1.2800 are not too far away. Although I have now squared up, I am looking to sell into strength towards 1.3000 - if we see it. Today sees the Fed I/R decision. No change is expected but the growth outlook will be closely watched.
Economic data highlights will include:
German PPI, EU C/Acc, EU Flash Consumer Confidence, Fed I/R Decision
