The euro recovered from early losses incurred in the wake of disappointing eurozone PMI and German IFO business confidence data after news that Greece was given 2-year extension to reach budget targets, according to a leaked Memorandum of Understanding draft.
Greek news encourage a recovery in the euro and European stocks, although there's plenty that could drag the euro lower today, including ECB Draghi meeting with German lawmakers and the FOMC's statement due for release at 18:15GMT.
Euro continues to waver at the rhythm of European news
The euro continued to move within its familiar range, where it has traded since mid-September driven mostly by eurozone's headlines and developments. EUR/USD bounced from a low of 1.2919 at the beginning of the New York session after a draft of the Memorandum of Understanding between Greece and the troika was leaked, signaling that the Hellenic Republic will get a 2-year extension to meet deficit targets. EUR/USD was last down 0.2% at 1.2960.
However, as it has been the case lately, the shared-currency could extend its rangebound trade until the market gets clearer signs of progress on Greece and a possible Spanish financial aid request in the coming weeks. Today's downbeat data evidences that while recent actions by eurozone policymakers may have calmed financial markets, the eurozone's problems remain firmly in place.
Technically speaking, short-term bias has turned more negative as EUR/USD lost the 1.3000 mark, but the bigger picture remains neutral to slightly bullish, with a break of either 1.2800 on the downside or 1.3170 on the upside necessary to take the pair out of its sideways pattern. At this point, it seems that this would rely on Europe's news.
Against a backdrop of increasing deterioration in the Spanish fundamentals and despite the recent positive political results in the last regional elections and the well-received short-term auction of Letras, Senior Currency Strategist at Rabobank, Jane Foley, comments "While the degree of any market tension over the weeks ahead will likely be calmed by the knowledge that the ECB's OMT awaits, we see risks of pullbacks in EUR/USD potentially to the 200 day SMA at EUR/USD1.2836"
Coincidentally, the TD Securities analyst team considers the 200-day SMA as a key support: "EUR/USD has continued its slide after breaking below the 1.30 handle yesterday, and could grind a little lower before finding more decent support near 1.2900", they comment. "Below there, trend support from August comes in at 1.2879, before the 200-day MA near 1.2840."
FOMC decision likely to be a non-event
The Federal Reserve policy announcement is due later today, but few major changes are expected after the Fed signaled further asset purchases (QE3) last month.
In this regard, the Commerzbank analyst team argues that even if the recent U.S. data has been better than expected the Fed is likely to sit back and see how things develop under the current program now. "The recovery on the labour market needs to gather momentum and Chairman Ben Bernanke has pointed out repeatedly that the Fed will remain expansionary even beyond any recovery", they comment. "Ahead of U.S. elections U.S. monetary policy is unlikely to take a sharp turn anyway. As a result the FOMC meeting tonight is likely to become a non-event for the U.S. dollar."