Is the euro setting its sight toward the 1.3172 September 17 high after all? The technical case is certainly building. Buyers have lately been emboldened by mounting evidence over the proximity of a rescue request by Spain and German lawmakers supposedly agreeing to extend the line of credit to the country. Putting the cherry on top of the cake for buyers was Moody's confirmation of Spain's Baa3 rating, keeping it (just) in the investment grade universe.
Moody's rating agency, amid an extended rationale, stated, that
the combination of euro area and ECB support and the Spanish government's own efforts should allow the government to maintain capital market access at reasonable rates, providing it with the time it needs to stabilise public debt over the next few years". Moody's assigned a Negative Outlook to the rating because risks to the "baseline scenario are high and skewed to the downside.
According to Chris Adams, Financial Times Markets Editor:
Moody's non-downgrade is good news for the market. It's a vote of confidence in Madrid's actions and gives Spain space to apply for ESM line, which it will do.
Troubling headlines may test buyers patience
The WSJ published a late U.S. report raising concerns over the diplomatic tangle Madrid and Berlin are being caught up into regarding the potential Spanish request for financial aid:
Despite Madrid's new willingness to push ahead, and a day after a senior Spanish official said that German concerns were preventing Madrid from seeking assistance, German officials insisted Spain hadn't indicated it wants aid.
Meanwhile, Greece bailout talks broke down on Tuesday, one day ahead of the EU summit. The Guardian reports:
Talks aimed at unlocking €31.5bn of aid for the debt-choked country were suspended amid unprecedented acrimony - despite late night efforts by both sides to dampen speculation that the negotiations had been derailed. Greek PM Samaras refused further labor reforms and wage cuts.
Bullish technical revival eyes September high
The latest climb in EUR/USD came after the NY closing bell, sparkling a rather entertaining activity to hunt stop loss orders, with 1.3085 being the first level to take down and where a fair number of sellers had been hidden. This served to trigger a 1.31 option barrier, as buyers joined forces to push on the path of least resistance in twilight Asian markets.
"Headed into the eurozone summit on Thursday and Friday, we recognize that expectations are low, but we think there is significant scope for a surprise", Christopher Vecchio, Currency Analyst at DailyFX says. "The EURUSD could reach its September high of 1.3170/75 by Friday."
A bullish bias was also observed by Valeria Bednarik, Chief Analyst at FXstreet.com, noting that
the upward momentum seems quite strong now that the pair trades above 1.3070, former monthly low, with scope for a retest of 1.3172 this Wednesday.
The EUR/USD ascension since September 18 high, which had formed a triangle - lower highs and higher lows -, was also broken during Tuesday, setting the stage for the continuation pattern to proceed its course. Wells Fargo said:
We have a slight bias toward strength in the euro and other foreign currencies, so long as the headlines suggest that further financial assistance for Greece and Spain remains a possibility.
What about chances of EUR/USD taking out September highs? According to Mitul Kotecha, Founder at Econometer, quite slim;
While the EUR remains very well supported as hopes grow of a Spanish request for bailout funds, I believe expectations of concrete action at the EU Summit beginning tomorrow are overdone, with significant decisions on Spain and Greece only likely in November. EUR/USD will struggle to break above resistance at 1.3180.