EUR/USD Constructive Calls Arise; U.S. Fiscal Cliff Negotiations Begin

Includes: FXE, FXY, UDN, UUP
by: FXstreet

A resilient euro stood firm against the cascade of bearish news, the most notorious being the official recession in the eurozone, the second time it occurs in the last three years. EUR/USD holds above 1.2760 after a 6-day high at 1.2800.

The increasing tensions between Israel and Gaza, with the first intensifying the bombing into the Hamas-based territory, caused some risk aversion in the markets during Thursday, as noted by the S&P 500, down 0.2% and the DJIA, -30pts.

In the U.S., mixed fundamentals failed to inspire the bidding tone, after jobless claims soared, the Philadelphia manufacturing activity came lower-than-expected, while U.S. core CPI stood at a neutral 2.0%. Focus in now on the "fiscal cliff" negotiations, set to start today. U.S. President Barack Obama will hope to find some balanced approach.

In European session ahead, a relatively quiet one is expected with little in terms of EUR macro related data. The second-tier events to highlight are the EU current account and Italy trade balance at 09:00 GMT, followed by EU trade balance at 10:00 GMT.

In the political front, there will be slightly more action with EU Commissioners Rehn and Barnier attending EU-Russia economic dialogue, Deutsche Bundesbank President Jens Weidmann due to speak in Berlin at 10:30 GMT, and the Spanish government holding its Friday's usual meeting, which could pour some headlines into the market.

From Japan, PM Noda is scheduled to meet the press at 09:00 GMT after dissolving parliament at 06:45GMT, which could add more volatility to EUR/JPY cross, and SNB Governing Board Chairman Thomas Jordan is due to deliver a speech in Zurich at 07:30 GMT, which could bring some volatility to EUR/CHF cross as well.

In-House Technical Analyst Valeria Bednarik, who had been recently calling for lower levels, has a more constructive view in favour of the bulls for this Friday, noting that dips are finding buyers on this new buoyant euro market mode. Valeria observes "indicators heading north above their midlines while 20 SMA gains bullish slope, supporting an upside continuation." There is scope to test next key resistance around 1.2880, she said.

Karen Jones, Head of FICC Technical Analysis at Commerzbank, continues to support the case for more selling to resume, and comments that the recent break down of a symmetrical triangle still suggest the next direction is 1.2480 region. Despite the recent bounce, she argues that "this has not dislodged any resistance of note and is viewed as merely a minor correction. Rallies are expected to find initial resistance at 1.2800 and be contained by the 1.2890/92 short term downtrend".

Immediate resistance to the upside for EUR/USD shows at yesterday's 6-day high/200 day SMA 1.2802/8, followed by Oct 10 lows/38.2% Fib of 1.3140/1.656 at 1.2835/40, and Oct 26/30 lows/Nov 07 highs at 1.2882/78. To the downside, closest support lies at recent session lows 1.2664, followed by Nov 07 lows at 1.2735, and yesterday's/Nov 08 lows at 1.2716.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.