Same old story: One more day in the EUR/USD, with the spot rate back to Friday's NY close around 1.2950 as both sovereign bids and asset managers continue to play the range game. The pair is mainly driven by sentiment these days, and a rebound during the last NY trade was enough for the pair to pare early Monday losses. In Asia, buyers outnumbered buyers by some 10+ pips, although nothing to read into the move.
According to Valeria Bednarik, Chief Analyst at FXstreet.com, "while stocks edged higher around the world, risk appetite was not enough to push euro beyond 1.2990 past Friday high, another signs bulls may be getting too nervous over Spain." There is lots of speculation regarding if/when Spain will bite the bullet. Meanwhile, the latest headlines suggest the Troika may recommend to eurozone FinMins that Greece is given an additional 2 years to meet budget deficit targets.
Some media outlets and banking institutions, like Westpac FX Strategist Sean Callow, argue that "the background remains EUR supportive", especially after Reuters reported that a Spanish bailout is planned for November, with Germany's intentions being to make it coincide with aid for Greece and Cyprus, according to senior unnamed Eurozone officials. However, this may be a double-edged sword, as certain sectors of the market perceive another Spain delay as disappointing.
Technically, the EUR/USD ascension since the September 18 high is forming a triangle - lower highs and higher lows -, a pattern suggestive of narrow fluctuations for now- aka 'times of tranquility before the storm.' Triangles are, as a rule of thumb, continuation patterns, thus when the breakout occurs, it should be higher as per trend formed since 1.2040 late July bottom.
From Fan Yang, Technical Expert at FXTimes:
The overall structure of the EUR/USD has turned into that of congestion as it makes lower highs since the 1.3170 high, and higher lows since the 1.2804 low.
Another interesting technical reading is the relevance of the 200 day SMA as of late, a pivotal level picked by buyers that is so far supporting lows; expect sizeable stop loss orders clustered right underneath 1.2800/1.2775 - not particularly at risk at this stage - yet worth noting.
For now, the range seems inevitable, as sovereign names and asset managers remain on both sides of the market. Further encouraging the stand-off by buying/selling forces to unravel 'the range battle', are doubts over the duration and depth of QE3 by the Fed. Weighing on the expansion of the range-bound story for now are also fears of being caught short EUR/USD when Spain decides to request the rescue package.
In case a bullish scenario happens to come into play, "a break above 1.30 is not enough for the bullish outlook and a break above the congestion resistance near 1.3025-1.3030 would be the first sign" Mr. Yang notes. However, what really matters for a true technical statement to be made is the break of a falling trendline at 1.3170, says the FXTimes Analyst; "the break above that trendline is going to be a game changer as it can open up the 1.3487, 2012-high."
According to Sean Lee, Founder at FXWW,
Interbank dealers report plentiful stops situated above recent highs at 1.2995 and again at 1.3020, which may be targeted soon if no pullback ensues. The US corporate offers which capped the pair on Friday may not yet have been replaced, leaving shorts vulnerable.