EUR... Ready To Rock?

Includes: ERO, EU, FXE
by: FXstreet

As markets are shrugging off the recent downgrade of France by Moody's, the first risk event for the EUR/USD is about to be unwound today with the extraordinary gathering of the EU finance ministers, centered firmly on the Greek debt crisis. At least some good news was hitting the wires yesterday (Monday), improving the mood for euro bulls and prompting investors to pump the brakes, after which the EU announced that the likelihood of Greece getting financial aid worth €44 billion has grown. Well, that rumor could well materialize today, Tuesday, if (and it's a big 'if') the EU and the IMF come to an agreement regarding when the Greek debt should reach 120% of the GDP. While the EU maintains its deadline in 2022, a reluctant IMF is keeping the former 2020 date.

Ahead of the aforementioned events, Strategist Axel Rudolph at Commerzbank argues that rallies in the cross should be well contained in the boundaries of the key level at 1.2900, where the 55-day moving average sits. He adds

the cross is revisiting the 200-day moving average at 1.2806 and could reach the 1.2825 October 11th low and also the resistance line at 1.2853 before coming off again… to 1.2661 and the area around 1.2480.

… Which 'fiscal cliff'?

The specter of the so-called 'fiscal-cliff' in the U.S. economy has lost part of its gloomy presence among investors since Friday, when optimism between U.S. President Barack Obama and the Congressional leaders pervaded. Positive comments that followed have extended the upbeat tone in risk appetite to the markets, markedly improving the risk-associated currencies/assets, in detriment of further inflows to safe havens, characteristics that prevailed in past sessions. However, there is still a fairly long way before we can see a solution to this matter, and although the path would surely meander around many unexpected obstacles, it is always better to face it with a more determined attitude.

The implications and back-and-forths in this matter would surely weigh on the cross via the USD flows, although its preponderance has somehow waned recently.

… Ahead in the day, and Wednesday's docket

The Spanish auction of 12m and 18m Letras would test once more the investors' confidence ahead of U.S. Building Permits and Housing Starts, trying to follow the path after yesterday's big improvement out of the Existing Home Sales. Fed Chief Ben Bernanke will give a speech later on during the North American session, carrying weight per se, as usual.

Ahead of the Thanksgiving holiday on Thursday, an empty docket awaits for the eurozone, while the weekly report on the labor market and the preliminary manufacturing PMI prints will be released in the U.S.

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.