The Euro is currently trading at its highest levels since its September 18 close to 1.3100 after breaking above its 1-month range between 1.2825 and 1.3070. The shared-currency joined the latest Moody's decision to keep Spanish rating unchanged at Baa3. Investors have been trading with confidence so far, as Spain appears to be closer to requesting a bailout, thus supporting European currencies.
The sentiment was also supported by strong earnings reports from big companies, including Johnson & Johnson and Goldman Sachs. The Dow Jones added 127.55 points or 0.95% to close at 13,551.78; the S&P 500 gained 12.79 pts or 1.03% to 1,454.92; The Nasdaq Composite rose 36.99 pts or 1.21% to finish the day at 3,101.17.
All the questions are now about if the Euro can sustain the rally. And many market players are concerned about that. Kathy Lien from BK BK Asset Management commented before the latest bullish movement that all the EUR/USD needed was "to break comfortably clear the 1.3050," and it just happened so we can assume as Lien followed, "it could be on its way to this year's high just below 1.35," but concerns are more in line of fundamental perspectives.
Weak confidence about any resolutions in the EU summit of this week. No decision on the Spanish bailout, no agreement on Greece-Troika talks and Portugal and Cyprus coming to news again. That's all reasons for lack of confidence in EU leaders.
So, as Rabobank's analyst Jane Foley thinks, "despite the precariousness of the political backdrop there is every chance that EUR/USD will finish the week little changed from current levels."
Foley believes that both, Euro and Dollar, "are weakened currencies" and it has "limited the volatility of this currency pair." Said that, Rabobank still anticipates that "an increase in tension in Spain could force pullbacks in EUR/USD," but they "now expect these to be limited to the EUR/USD 1.2800 area on a 1 mth view, with EUR/USD potentially remaining essentially range driven into year-end."
On the other hand, Christopher Vecchio, Currency Analyst at DailyFX, recognized that expectations are low, but he thinks "there is significant scope for a surprise. The EUR/USD could reach its September high of 1.3170/75 by Friday."
In the same line, Wells Fargo analysts see slight bias toward strength in the euro. "While we don't view today's FX moves as decisive, market participants are seemingly inclined towards optimism rather than pessimism at this point, and remain sensitive to European headlines."
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.