On Monday, EUR negative headlines went from Germany’s IFO disappointment through Greece’s big budget gap - twice earlier forecasts – to the market impatience on whether or not Spain will tease for a financial rescue application in coming days.
Since PM Rajoy’s is due to announce a draft budget for 2013 on Thursday, followed by a final assessment on additional capital Spanish banking needs the day after, expect no groundbreaking bailout headlines just yet – although leaks are never a far prospect -, which should keep Euro sellers as the strongest force short-term. Market knows EU authorities are working behind the scenes on a new Spanish rescue programme, but when this is announced is what matters.
Selling forces keep 1.30 safe; Technicals constructive to further downswings
As rightly pointed by NAB strategists, “weak German IFO survey plus Spain’s ongoing prevarication in asking for EU/ECB help, weighs on the Euro and limits prospects for a recovery back through 1.3000.”
NAB's bleak Euro outlook falls in sympathy with Sean Lee's view, Founder at FXWW, who suspects heaviness is here to stay; “I am expecting a slow fall over the next few sessions inside of a broad 1.2835/1.3000 range.” Sean does not discard even strong technical support at 1.2755 being tested over coming days.
In-house FXstreet.com Analyst Valeria Bednarik, who has been suggesting weakening technicals in the EUR/USD since the double-top formation in the H4 last week, remains on the sell into strength side. The Argentina-based Analyst, however, sets as pre-requisite a break below 1.2880 to confirm more slides this Tuesday.
JP Morgan FX strategists John Normand and Niall O'Connor, are still looking for a range breakout between 1.3275 (weekly trend) and 1.2775 (int. 38.2 %) to determine “whether we are indeed challenging the key-T-junction on big scale at 1.3487/93 or whether we have only seen another overshooting at crucial Fib.-resistance at 1.3057.”
JPM adds: “Below 1.2775, the market would be back in negative territory and would most likely not hesitate to challenge 1.2607 (int. 50 %) and 1.2309 (int. 76.4 %) at a later stage. The latter is the decisive T-junction to distinguish between a countertrend decline only and the potential resumption of the long-term downtrend.”
"Headline driven markets make strategic positioning rather challenging, but with days ahead of anything potentially positive out of Europe," FX strategist at TDS, Mr. Osborne and Mr. Moore points, "it is best to stick with the trend. "Below 1.29, the low 1.28 area looks to be the next major area of support," they add.
Eur specs still short; Dip-buyers unlikely to run to the exits
Euro doomsayers expecting impulsive sharp falls reminiscent of early May/June, however, should not hold their breath, as EZ tail risks reduction coupled with QE3, make dip buyer strategies not a bad proposition either. Moreover, specs still remain quite EUR shorts.
According to prime brokers that Sean Lee had access to, they continue to report that EUR shorts are still at significant levels “and one of the better-connected PBs expects to see 1.36 in EUR/USD in coming months” the analyst wrote in his FXWW blog earlier in Asia. A rally above 1.30 can returns the focus to the upside, FXTimes Technical Expert Fan Yang notes.
Busy day ahead; Watch headlines
Headlines are an inevitable part of the trading game, and today, as noted by Senior FXstreet.com Editor Ramon Casas, "we get ECB's Mario Draghi meeting German PM Angela Merkel to discuss the state of the euro economic and currency union." There will be other second-tier talks along the way, "with other EU leaders giving speeches, and FinMins Urpilainen, Schaeuble and de Jager to hold talks on the euro crisis" Mr. Casas adds. Draghi is also expected to deliver a speech in Berlin at 13:00 GMT.
In terms of indicators, unlikely traders will find an excuse to move price more than a few pips, with Germany GFK consumer sentiment to be published at 06:00 GMT, ahead of French business confidence at 6.45GMT, Spanish PPI at 7GMT, Italy consumer confidence at 08:00 GMT and hourly wages 1 hour later.