Disappointing European data and ECB Draghi saying economic situation in the eurozone remains fragile and it is not expected to change in the near term weighed on market’s sentiment, while the fact that Greece parliament is set to vote on new austerity measures needed to secure the next tranche of EU aid adds to the risk-off mood.
Meanwhile, the US has its own issues. With the presidential election behind, investors are turning their attention toward concerns over the upcoming fiscal cliff. The economic calendar is pretty light for the rest of the day.
Euro falls back below 200-day SMA
The euro rallied during the European session and hit a high of 1.2876 versus the dollar, but failed to sustain gains and plummeted in the wake of ECB Draghi's comments. The EUR/USD was last down 0.5% at the 1.2750 area, having hit a fresh 2-month low of 1.2735.
Technically, the short-term outlook for EUR/USD has turned bearish after the pair broke below the 200-day SMA and the bottom of its 2-month range at 1.2800. A decisive break below 1.2740 (38.2% retracement of the broader 1.2040/1.3171 rally) could add pressure to the shared currency, with the 1.2700 area coming into view.
"The EURUSD selloff has seen the pair make fresh two-month lows in recent hours and a continued bleed for risk assets broadly could keep the pressure on. After breaking the lows set earlier this week, the 1.2750 area could provide a minor toe hold, but a deeper slide toward the 1.2715/30 area looks to be in the cards in the short term", says the TD Securities team.
Meanwhile, the Wells Fargo team argues that for the period ahead, gains in the dollar and yen are expected as financial markets come under some pressures. "While good news may at times boost the markets – for example, an eventual financing for Greece – the U.S. budget talks should be the main theme. As a result, markets are likely entering a more uncertain phase, which has the potential to weigh on many foreign currencies".