The single currency has finally followed through the psychological resistance at 1.3000, and it seems on its way to leave it behind any time soon, as long as this wave of risk appetite continues to swell to the detriment of the safe havens.
The truth is that since November 13 (1.2661) the euro has been advancing against the greenback to today's highs above 1.3080, so far.
… Scenario is the same, risk is now outperforming
A quick glance back would situate us in the aftermath of the first EcoFin meeting, failing to deliver the long awaited deal on the Greek debt. A really short-lived knee-jerk in the markets has followed, giving way soon afterwards to renewed hopes of what would soon be the delivery of the next tranche of financial aid directed to the Hellenic Republic. However, some technicalities were still missing, and being dealt with in the actual EcoFin meeting. Nonetheless, this deal on Greece seems to be a sort of temporary fix, as shown by the country's fundamentals, entrenched in negative territory with no permanent solution envisaged alongside a delicate equilibrium among its political parties.
The optimism surrounding EUR/USD has grown even bigger after the final eurozone manufacturing PMI figures and the bloc composite showed improvements across nations, except Italy. The upbeat tone among traders shifted sentiment across markets despite the results showing nothing but a slight improvement when compared to previous estimates and prior readings. The key manufacturing sector in the 17-nation bloc is still well into the contraction territory, and there is nothing in the near or medium term horizon to make investors think - or imagine - anything other than a somber fourth quarter for the euro area. At this point, one should then wonder where the risk appetite came from.
… 1.3100 is on the cards
Ahead in the week, the ECB will hold its monetary policy meeting, although no major announcements are expected, thus giving way to the biggest event in the week due on Friday, the NFP in the U.S. economy.
According to the Financial Markets Research team of Rabobank, the net positioning in euro-shorts dropped almost 30% in the last week along with a break above the 1.30 mark. Therefore, the weakness exhibited by the USD would continue to be one of the (unique?) main drivers for the cross in the upcoming sessions.
Karen Jones, analyst at Commerzbank, comments: "EUR/USD has maintained upside pressure, trading through the 2011-2012 downtrend. This suggests some unfinished business on the topside and further probes into the 1.3150/80 zone must be allowed for. This consists of the recent high and triple Fibonacci retracement and this remains tough overhead resistance". The analyst also points out that a surpass of 1.3180 would neutralize the bank's bearish outlook, re-orienting targets to the area around 1.3487/1.3519
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.