Dark Clouds Looming Euro Skies

Includes: FXE
by: FXstreet

The 1.3000 mark remains just a vague memory for euro traders. The same fate seems to lie ahead for 1.2900, after the IMF has lowered its growth forecast for next year to +0.2% from +0.7% and affirmed that the actual euro crisis constitutes the biggest threat for the global financial stability. Mario Draghi's speech before the European Parliament on Tuesday did not help the single currency either, after assessing that the euro faces rising risks of instability in the near term, urging EU leaders to join forces and together drift the course of the euro ship away from the falls. If we add another fiasco at the Ecofin meeting, the panorama does not bode well for the shared currency.

Politicians and economists look opposite ways

This week is marked by relevant - theoretically, at least - meetings involving the main characters of the eurozone, and their well-known agenda including the Spanish request for financial aid, and the Greek final tranche of funds directed to ameliorate its ailing accounts. But no major news is expected from them. As per usual, the tone would be the same, opposite to what the ECB utters. There won't be any joint forces.
Radio silence from President M. Rajoy after the recent riots in Madrid against the new austerity measures plus the same attitude from the Greek government is prompting investors to ask whether these countries have what it takes to quell the problems in their own backyard, against a backdrop of alarmingly high unemployment, lackluster economic growth outlook and weaker fundamentals. True, Spanish bond yields are not yet echoing the somber scenario, while the euro has already fallen from the vicinity of 1.3170 on September 14 to the boundaries of 1.2800 at the beginning of the present month.

But currency analysts seem to agree

Immersed in the negative territory and extending the trend initiated on Monday, the euro is treading water in the 1.2850 region as of this writing, most likely waiting for the release of the Fed's Beige Book in the European evening as the relevant data or results in the eurozone are absent. But again, the EUR will hinge on the USD for its price action, as the uncertainties abound in the euro space, preventing the shared currency to build its own path.

Karen Jones, Head of FICC Technical Analysis at the German lender Commerzbank, assesses that the recent decline in EUR/USD would point to 1.2823/1.2750. "Technical indicators are starting to turn negative, failure to hold 1.2750 would see the market under increasing downside pressure to sell off to 1.2605 the 1.2472 … " In the same line, Jane Foley, Senior Currency Strategist at Rabobank, expects the cross to derail to the 1.2600 region in a one month view.

The session ahead

Thursday will kick in with a measure of September's New Loans in China, followed by the Consumer Confidence index in Japan. The eurozone will see a batch of inflation figures for Germany, Italy, Spain, France and Portugal, with mixed results expected. Unemployment data in Greece would be significant in light of the recent developments in the country. Finally, the ECB Monthly Report will also catch investors' attention.

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.