Banks seem to be bearish in the short term. TD Securities team says that "daily price action earlier in the week formed a firm of the 1.3150 area," but the "weakness and the reversal were confirmed by subsequent price declines."
"Also, the DMI oscillator suggests that the bull trend has weakened – even if it remains positive," adds TD team. "Daily support is 1.2925 now (former trend channel ceiling) but the risk of a deeper pullback has grown this week. Price action suggest that the coming week will be characterized by further consolidation and possibly more weakness towards 1.26/1.27."
Commerzbanks agrees with TD Securities as "clearly market participants do not want to storm too far ahead yet, as too many questions in the euro zone remain unanswered". "Admittedly the EUR-USD rally since 5th September was very impressive: the pair was able to rise by more than 6 US cents over 8 trading days. This move then ran out of steam on Monday in the area just below 1.32", says Lutz Karpowitz, analyst at Commerzbank. "This was probably not only due to profit taking as there are too many uncertainties for the markets to still be betting on risk-on sentiment".
Karen Jones, also Commerzbanks' analyst, believes that "the Elliott wave count is implying that we will see a deeper pullback near term to 1.2829/1.2700(200 day ma), provided this, together with the 1.2585 uptrend, holds we should have a renewed upside attempt”, wrote analyst Karen Jones, pointing to a directly offered market at 1.3050. Above here, 1.3150/80 is the target ahead of 1.3483/1.3540 (Fibo, this years high, 200 week ma) “and we would expect this to hold the topside and provoke failure”, Jones added.
Jane Foley from Rabobank points that "it will be a dark day for the Spanish government when it finally admits it [needs] to request a bailout,” she comments in a research note. “As a consequence we are still pencilling in risk that EUR/USD could still pullback to the EUR/USD 1.2600 area this autumn,” and “we maintain a 12 mth EUR/USD forecast of 1.3500,” she concludes.
Spanish bailout ready but in the freeze yet
Headlines about a possible Spanish bailout are moving the markets since late US session of yesterday, with the FT report that a “Spanish bailout could come earlier than expected as EU Leaders were working with Spanish leaders in the crafting of the new budget and structural reforms”.
“Spain will have all of the preconditions for a program in place by the end of next week with the 2013 budget, a schedule for structural reforms, and the full results of the banking sector stress tests”, wrote analyst Richard Kelly, pointing however that it doesn't mean Spain will make the request right away, as they may still want to see if having everything in place is enough to keep market pressure at bay, especially with regional Spanish elections and no large rollovers to come until the end of October.
Finally, in a recent COT report, TD Securities points that "the net EUR short position was pared again to 73.5k contracts. While net EUR shorts still make up the largest aggregate position among IMM investors, the current size (amounting to USD12.0 bn) is now well below the peak of USD33.4 bn reached in June."
US stocks end mixed on Spain, no stop until 1500 on the S&P 500 index
U.S. equity markets ended the week little changed, as investors remain on edge about global growth, but market chatter that Spain may soon formally request European aid helped lift sentiment, alongside Apple Inc’s iPhone 5 debut.
Standard & Poor’s 500 Index shed less than a point to 1,460.16, ending down 0.1% for the week. The Dow Jones Industrial Average fell 17 points to 13,579.93, gaining 27.56 points, or 0.2% for the week. The Nasdaq hit a 12-year high before closing up 4 points, 0.1% to 3,179.96.
As RBS notes of the benchmark index: “[S&P] has traded poorly after reaching a strong resistance region of 1,460/70 region (the 176.4% projection from the Oct’11 impulse wave), as was suggested in the last weekly publication,” it says in a research note. “Unless the price breaks to new highs indicating assault on the above-1,500 region, the short term view is still for a correction/consolidation to be in place with key support levels of 1,450 and 1,427.”
According to Miller Tabak's analyst Andrew Wilkinson, it isn't enough as "Equity investors probably won’t stop until they see 1500 on the S&P 500 index."
The recent Fed QE move "sparked a five-year high of 1474 for the index and we are sure that the removal of what used to be risk-off catalysts is sure to propel the venerable index to 1500 before speculation dries up," affirms Wilkinson