The Dollar has been the winner of Monday's session on the back of a low volatility session with the market focused on earnings season, Europe concerns and recovery fears as the world bank cut its forecasts for economic growth in China. The US Dollar has advanced against its major rivals except the Japanese Yen. The EUR/USD closed the day at 1.2965, a 0.36% negative, GBP/USD fell 0.69% on the day and the USD/JPY declined 0.49% so far today. And the scoop is the market could be bullish in the short term.
The EUR/USD bottomed out at 1.2936 during the European session, and even though it managed to trim losses afterward, the recovery has been capped by the 1.2980 zone so far, confining the cross to a sideways consolidation phase between 1.2963 and the mentioned 1.2980.
Today, GBP/USD broke sharply below key Fibonacci support at 1.6060 (23.6%, 1.5266/1.6308) to hit a new 4-month low of 1.6020. The GBP/USD has remained trading in range, consolidating loses, between 1.6020 and 1.6035.
The USD/JPY tested bids below the 78.10 support level in earlier NA trade, the pair encountered buying interest and climbed back above the 200-hr EMA (78.25) into the 78.30 price zone where the pair remains trading sideways.
The ESM program (European Stability Mechanism) aka EU's permanent bailout fund was launched on Monday and put it on with fully operational features, as said the head of the lending institution Klaus Regling. Fitch rated it with the top AAA rating, with a stable outlook, but Moody's assigned it with Aaa rating but outlook negative.
Meanwhile but at the same continent, German Finance Minister Wolfgang Schäuble told reporters that Spain "does not need additional financial aid," adding that the country's government is doing all that is necessary to fight the crisis.
The first of the 2-day meeting has finished with a press release with news about Portugal's next tranche and Greece with the Oct. 18 deadline. Angela Merkel will travel on Tuesday to Greece and the market is assuming this is a new hint about Greece holding the Euro membership. In the coming days, markets will be watching the headlines from the European finance ministers' meeting followed by the G7 finance ministers' meeting later this week.
Senior Economist Frank Hensen at Danske Bank argues, "We think there is more upside to EUR/USD this week, not least as the latest IMM data showed that the market is still speculative short EUR/USD." The economist remarks that an eventual call for financial aid by Spain would be euro positive, removing some tail-risk from the single currency.
And it is true that Spain continues to be the main catalyst for any relevant move in EUR/USD in the medium term. As Jane Foley, Senior FX Strategist at Rabobank puts: "While we expect USD weakness to be the prevailing theme into the fiscal cliff at the end of this year and into 2013, the crisis in the Eurozone can almost certainly be relied upon to provide pullbacks in EUR/USD along the way." The analyst also points out that the longer M.Rajoy waits to call for financial aid, the higher Spanish bonds yields could climb, jittering the markets once more.
Although the analyst sees the likelihood of declines toward 1.2600, "Medium-term, however, we expect an improvement in risk appetite and coincident USD weakness to allow EUR/USD to push towards 1.35 on a 12 mth view."