… The (S)pain continues
Since the tops at 1.3172 posted in mid September, the euro has done nothing but falling against the greenback to today's lows below the key level at 1.2850. While Greece remains on the cards, Spain has taken over the main role in the eurozone drama, and promises to ignite the fireworks in the upcoming sessions. Protests jolting the country defying another squeeze by the government's plans to meet budget conditions are echoing in the domestic debt market, with yields in the benchmark bonds dangerously approaching the critical threshold of 6.0%. All these events have derived in entrenched pessimism among investors, queuing to unwind euro long positions.
… Could it be temporary?
Analysts are now debating whether this is a temporary correction, clearing the way for further upside attempts in the near future, or is effectively a change in the recent bull trend. That said, market consensus places Spain as the main trigger of future events, as J.Foley from Rabobank argues, "October promises to be a testing month for Spain and in this environment we see risk of pullbacks for EUR/USD towards the 1.2600 area." In the same tone, K. Jones at Commerzbank suggests that the cross might be marching south towards 1.2624 (2-month uptrend).
… Or the spark for a new bear trend?
All in all, it's being a forgettable week for the single currency so far, and the heavy calendar tomorrow doesn't bode well for euro bulls: import prices in Germany are forecasted to rise, while a small increment in the unemployment change wouldn't affect the jobless rate in the first EU economy. A set of confidence and sentiment indicators in the bloc composite as well as in Italy and Portugal would prepare the terrain for a key Italian 10-yr bond auction.