By Stuart McPhee
EUR/USD for Wednesday, December 4, 2013
In the last 24 hours, the Euro has returned back to 1.36 after bouncing off some support at the key level of 1.3550. To finish out last week, it settled right around the 1.36 level after earlier in the week moving up strongly through the resistance at 1.3550. In the week prior, the Euro did well to bounce strongly off support at 1.34 and recover the lost ground from the previous couple of days which saw it fall from the resistance level around 1.3550. This was after a few weeks which saw it move steadily higher from a support level at 1.33 back up to a three week high just above 1.3550. For some time now, the 1.3550 has been a key level and this may continue to play a role should the Euro ease back a little from its present levels. Towards the end of October, the Euro enjoyed a strong surge higher to move through to its highest level in nearly two years just above 1.38 before spending that week content to consolidate around this level. Over the following three weeks, it fell heavily down to a support level at 1.33 before recovering well over the last few weeks. It moved quite well throughout the middle of October after breaking higher from its sideways range. For the month leading up to that, the Euro traded within a narrow range between 1.3450 and 1.3650 before the range narrowed down to between 1.35 and 1.36. The former level of 1.35 was strongly tested a few weeks ago and has resurfaced as a significant level presently.
Throughout August the 1.34 level had been causing the Euro headaches, however, several weeks ago it surged higher and moved through there to its then highest level since February just shy of 1.3570, which was past a couple of weeks ago moving to just shy of 1.3650. About a month ago, the Euro fell strongly away from the resistance level at 1.34 back to below the support level at 1.32 and in doing so, traded to its lowest level in seven weeks very close to 1.31. Looking at the bigger picture, the Euro spent a lot of August and September trading within a range between 1.32 and 1.34 before recently pushing its range to between 1.3450 and 1.3650. Back in early July, the Euro was content to maintain the level above 1.31 and settle there, as it received solid support from both 1.30 and 1.31. On a couple of occasions, it made an attempt to move within reach of the longer term resistance level at 1.32 and finally it finds itself trading on the other side of this level and being well established there.
Throughout May and most of June the Euro surged higher to a four month high above 1.34. Before that in the first half of May, the Euro fell considerably from near 1.32 down to six week lows near 1.28. Back at the beginning of April the Euro received solid support around 1.28 and this level was called upon to provide additional support. Throughout this year, the Euro has moved very strongly in both directions. Throughout February and March, the Euro fell sharply from around 1.37, down to its lowest level since the middle of November around 1.2750. Sentiment has completely changed with the Euro over the last few weeks and the last couple of months has seen a rollercoaster ride for the Euro as it continued to move strongly towards 1.34 before falling very sharply to below 1.29 and setting a 6 week low.
For the first time in the month of November, Spanish unemployment claims declined. The key indicator posted a decline of 2.5 thousand, surprising the markets, which had forecast a gain of 49.3 thousand. This was the first drop since July. Traditionally, the summer months show a decline due to the influx of tourists, so the November release was a pleasant surprise. Now the big question is whether the unemployment rate, which stands at a staggering 26%, will follow suit and show some improvement. eurozone PMIs, an important gauge of economic activity, were a mix on Monday. Spanish Manufacturing PMI had a dismal October, sliding to 48.6 points from 50.9 last month. This marked the first contraction we've seen in the manufacturing sector in six months. There was better news from the Italian and eurozone Manufacturing PMIs, both of which rose slightly and met expectations. The Italian release came in at 51.4 points, while the eurozone PMI hit 51.6 points.
(Daily chart / 4 hourly chart below)
EUR/USD December 4 at 01:30 GMT 1.3587 H: 1.3613 L: 1.3535
During the early hours of the Asian trading session on Wednesday, the Euro is consolidating a little just under 1.36 after bouncing off support at 1.3550. Current range: just below 1.3550 around 1.3535.
Further levels in both directions:
• Below: 1.3550, 1.3400 and 1.3300.
• Above: 1.3650 and 1.3800.
OANDA's Open Position Ratios
(Shows the ratio of long vs. short positions held for the EUR/USD among all OANDA clients. The left percentage (blue) shows long positions; the right percentage (orange) shows short positions.)
The EUR/USD long position ratio has just slipped below 30% as the Euro has rallied off 1.3550. The trader sentiment remains in favour of short positions.