Sentiment is reversing against the single currency, as the absence of catalysts to fuel further upside are now leaving investors succumbing to their doubts, wondering which direction it should take.
The buoyancy experienced after the positive results out of the Spanish regional elections over the past weekend are now covered by dust. The bitter reality has turn up yet again, materialized in yesterday's downgrade of five Spanish regions - the effervescent Catalonia among them - by agency Moody's, regurgitating old tremors that seem to be forgotten by part of the FX community.
But, fair is to say, markets do not seem to be downside-prone these days. With a strong support lying in the vicinity of the psychological 1.3000 figure, pullbacks are seen as opportunities to go long EUR/USD. As demonstrated by the last CFTC report on positioning, euro-shorts have retreated further, prompting investors to join the joyride while it lasts.
Last Spanish auction of 3m and 6m Letras have fulfilled everybody's wishes so far, temporarily closing the door to the perils of high borrowing costs, and adding to the upbeat scenario.
… Northbound path most likely
Although the single currency remains sidelined, analysts converge on the idea that the cross would be getting ready to climb to the next step. Karen Jones, expert at the German lender Commerzbank, expects dips to be well contained in the area around 1.3000/1.2995, and adds "the market is well placed to challenge the 1.3173/80 resistance… The risk has increased that we will see a break through this resistance as we have a confirmed buy signal on the daily technical indicators". The expert argues that a breakout of 1.3180 would see the region of 1.3487/1.3531
Same line of thinking applies to Gareth Berry, analyst at the Swiss UBS, when informs that the bank remains bullish on the cross: "near-term resistance is at 1.3091, a break above would open the way to 1.3140/72. Support lies at 1.3012 ahead of 1.2983".
… Wednesday could be key
For starters, risk trends will be put to the test after the preliminary HSB manufacturing PMI see the light in China, preceding a batch of same indicators for the euro zone core members and the composite. German IFO series will follow, with market consensus expecting mixed results. And then, the main dish will come along with the FOMC monetary policy statement, the first one after the Fed announcements of further stimulus in the US.