Euro Challenges Bears Around 1.2900

Includes: FXE
by: FXstreet

The bloc currency is exhibiting some sort of unusual bravery in the proximities of the key level at 1.2900 at the beginning of the trading week, following mixed data out of Chinese inflation figures, better-than-expected retail sales and industrial production. The worrying side of the Chinese data continues to be the downtrend in exports, dragging the last trade figures to a narrower surplus.

The investors' confidence in the eurozone, gauged by the Sentix index, remains subdued and trading well into the negative territory, posting a depressingly marginal improvement to -16.8 for the month of December from -18.8 previous.

… Italy re-emerges as a menace

Italy has again become yet another issue to be worried about, after Italian PM Mario Monti has announced he will step down once the Italian Parliament has approved the 2013 budget later this month. His decision was accelerated after the former PM Silvio Berlusconi's Party retired their support for Monti's political mandate. Therefore, the move has triggered anticipated elections, most likely at the beginning of 2013. Although the euro is showing some kind of hesitance at the moments, the debt markets have started to echo the news, with the 10-year benchmark yields already climbing and the stock markets trading under pressure.
In addition, the economic activity in the peninsula has contracted 2.4% during the third quarter, matching the overall "recessive" tone prevailing in the bloc.

Market participants should not forget not long ago when Italy - the third economy of the 17-nation zone - was threatening the bloc's financial stability, triggering spiraling jitters and bouts of panic. Well, it seems bond yields are getting reminded today.

At first glance, it seems the EUR/USD would focus on the FOMC meeting first, and then another EcoFin gathering towards the end of the week. Karen Jones, expert at Commerzbank, suggests "EUR/USD last week reversed ahead of key resistance at 1.3150/80 … and has sold off to the 1.2880 28 … While it is possible that this will hold the initial test, we look for rebounds to now be contained by the 1.3021/235 end of October highs. We regard the 1.2880/76 support as exposed".

At the same time, the in-house Bullish Percentage Index has extended its decline below the 50 threshold, showing at the moment that 26.32% of euro-based pairs are still on bullish mode, according to point and figure patters.

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.