The shared currency continues to inch higher in the second day of the trading week, against a backdrop of a slight improvement in the investors' confidence in the euro area, as shown by the last reading of the Sentix index.
… Euro consolidating above 1.3100
The EUR/USD has climbed more than a big figure since yesterday's lows in sub 1.3020 levels, however the cross has wobbled around 1.3140, retracing afterwards to the actual 1.3120 area as we get closer to the ECB monetary policy meeting, due on Thursday.
Mixed data out of trade balance figures in the core economies have combined with a record high jobless rate in the euro zone at 11.8% during November as well as mixed retail sales results. Despite the improvement in several sentiment/confidence/climate measures, all of them still remain in the negative territory, although the cross has not yet echoed that.
The next ECB meeting would prove to be 'almost' a non-event: with another rate cut practically ruled out, markets are already anticipating a more dovish tone in the later press conference by President M. Draghi, leaving only space for a surprise, although that scenario seems pretty unlikely so far. It seems fair to admit that in this status quo, the euro would be biased towards further upside once the ECB meeting has passed.
Nevertheless, any near-term improvement in the single currency would face the threat of the fiscal scenario unfolding in the US economy, with both the spending cuts and the debt ceiling talks overlapping and feeding a potential spiral of uncertainty and risk aversion, at least until the deadline on March 1.
"We think for the short-term at least anything intraday for the EUR/USD between 1.3137 and 1.3172 is looking fairly toppy for now," writes expert William Moore at RBS.
Continuing with the technical view, the in-house Bullish Percentage Index keeps navigating below the 50% threshold. At the moment, it is signaling that 36.84% of euro-based pairs are still in bullish mode, according to point and figure pattern.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.