Previously, the EUR/USD slid to a 4-day low of 1.3263, where the hourly 100 SMA acted as dynamic support. Currently trading 0.50% down on the day at 1.3300, if the euro falls below the 1.3260/65 zone, next supports are seen at 1.3247 (Jan 11th low) and 1.3200 (psychological level). On the upside, resistances are now seen at 1.3310, 1.3365 (Jan 11th high) and 1.3400 (psychological level).
The Euro was also hit during the American afternoon by Spain PM Rajoy ruling out an aid request... again. The Spanish president insisted that Spain was right not to do it last year. "I think that in this moment, when there is a need for growth, those who are able to implement growth policies should do it," pointed Rajoy calling for more stimulus from eurozone creditors nations, including Germany.
Meanwhile, the US debt ceiling crisis seems to be gaining traction as next market concern. According to the latest BofA Merrill Lynch Fund Manager Survey, the investors are more concerned on US fiscal crisis than a EU sovereign deflation and/or a China hard landing. In fact, managers believe that a US downgrade is more likely than the USD/JPY at 100.00.
Euro losses its strength, while yen regains the upside: BK’s analyst Kathy Lien said: “So in past 24 hrs, EU Juncker says EUR dangerously high, Amari says beware of excessive JPY weakness. Guess where the trading opportunity is."
Who would ever want to fight the Dollar?
Kit Juckes, Global Head of FX Strategy at Societe Generale notes that America is winning the currency war. when comparing the US and the UK, the UK slumped in 2012 due to dependence on exporting to Europe.
“So far, so silly, and so sterling negative," affirms Juckes. "Looking to Germany against the US, he notes that in out performing the German export machine, the US is winning the currency war. Next, adding Japan to the equation and concludes quite simply that Japan is the big loser of the currency war."
“Buying USD/JPY is the obvious conclusion. Working out when to fade the Euro rally (not yet, for sure) is the next question,” Juckes concluded.
Back to the EUR/USD, 1.3300 comes as immediate and important support. TD Securities' analysts Shaun Osborne and Greg Moore believe the "1.33 should now be a key pivot point." TD expects "dips should be rather shallow now on the trek toward 1.35/36 in the coming weeks."
On the other hand, UBS analyst team considers that the EUR/USD may overshoot long-term targets in the near term. EUR/USD at 1.3350/70 is close to the UBS year-end forecast of 1.34 while EUR/CHF and EUR/JPY are also close to the 12 month forecasts (1.23 and 121). "Nevertheless, the exchange rates may well overshoot our long-term targets in the near term, as the need to cover short EUR positions is high", says the UBS team.