Euro Hinging On The USD

 |  Includes: FXE, UDN, UUP
by: FXstreet

Euro bears have taken over the single currency throughout the duration of the week. Part of this weakness exhibited by the euro comes from its own backyard, as demonstrated by softer manufacturing and services flash PMI prints in the eurozone members and the bloc as a whole, which collectively dampened any attempt of recovery towards the fourth quarter. When comes to projections, the relevant IFO series have greatly disappointed investors, offsetting the improvement of the Gfk Survey earlier on today. Other measures of consumer and business confidence in both peripheral and core EU members have followed suit, exposing the deteriorated situation prevailing in the bloc.

In the political arena, the situation does not look better either. Despite the good performance of ECB's Mario Draghi before the German Parliament, the euro has witnessed action only after the later confirmed leak unleashed by the WSJ, that Greece would have two more extra years to meet the EU requests.

The other reason behind the decline in EUR/USD since Monday can be explained by a gradual shift away from risk-associated assets by the market participants, intensified after U.S. data out of durable goods orders and the labor market weekly results have positively surprised traders. With the focus on the U.S. economy, Derek Halpenny, European Head of Global Markets Research at BTMU, comments "the real GDP data for Q3, released today, will be key for Obama in selling to the electorate that the economy is on the mend. Personal consumption is expected to accelerate from the subdued 1.5% pace in Q2, which will be further evidence that the U.S. consumer is feeling better. With so much uncertainty globally at present, the dollar should at least remain firm."

… 1.3000 now in the rear view mirror?

With the cross penetrating the psychological mark of 1.3000 in the mid week and actually consolidating below it, the FX community has to be contemplating the likelihood of this correction lower.

Expert Karen Jones, at the German lender Commerzbank, argues that the cross has resumed its downside towards the boundaries of 1.2900 and 1.2836 (MA200d), suggesting that a breach of it "would imply that the market had topped and signal losses to the 1.2738 then 1.2605, the 38.2% and 50% retracements." She adds that rallies would find the first hurdle at 1.3025/84, followed by 1.3140/80. Following the same tone, Gareth Berry, analyst at UBS, confirms the new neutral stance of the Swiss bank on the cross, assessing "the recent weakness is approaching 1.2891; a break below would trigger deeper correction to 1.2802 and then 1.2741. Resistance is at 1.3023-84."

In the view of Jane Foley, currency strategist at Rabobank, Spain is posed to remain in center stage in the near-term, saying "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".

When we analyze euro pairs and their relative positioning, it's time for the Bullish Percentage Index (BPI) developed by The index has just printed below the 50 threshold, showing a reading of 42.11 at the moment, indicative that less than 50% of the euro-based pairs are now on bullish mode on point and figure charts. The development of the recent bearish divergence between the BPI and some euro pairs would be consistent with the actual selling pressure surrounding the shared currency.

… Light but interesting docket on Monday, nonetheless

Japanese Retail Trade will be the initial spark for the FX trading week, followed by Retail Sales in Spain. Mortgage Approvals in the U.K. would give investors a gauge of the real estate sector in the British economy. Inflation figures in Germany will also see the light, following U.S. Personal Consumption Expenditure.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.