The shared currency has started Monday on the wrong foot, falling markedly against its American counterpart. It will be some sort of an awkward session, as an extremely light calendar would prevail in both Europe and the U.S., coupled with the inactivity in Wall St. due to the landfall of hurricane Sandy, which expected to hit the East coast during the day.
There is also mounting pressure to sustain the 1.3000 mark, which has overwhelmed euro bulls in late sessions, giving the main role to the next big figure down as the trading week has kicked in. The main event today would be again on the politico's side, as President Mariano Rajoy will meet its Italian peer Mario Monti, in a context of stable borrowing costs in both debt markets and Spanish CDS orbiting around 400 bps. If we consider the last fundamentals, Spain is taking all the heat after unemployment just hit a record high of 25% and domestic retail sales dipped significantly during September. Greece has also sent a brief reminder to market participants that its problems are ages away from over, as the packet of austerity measures will be scrutinized in the Greek parliament, against a backdrop of increasing disagreement between some political parties and the "troika."
… Technicals and the ECB playing their cards
When comes to talk about how deep any pullbacks in the EUR/USD would be, if there would be any, the area around the key support at 1.2800 is actually reinforced by the vicinity of the 200 day SMA on the 1.2830 area. As if this would not be enough, investors always have to remember that the ECB's OMT programme is just around the corner in case things get worse. So, it seems the net would be more than resistant. Although nothing can be ruled out, the euro would need an exceptionally bad batch of data or events to penetrate that region, en route to deeper levels.
Expert Karen Jones at Commerzbank remarks that the cross could have found a top in the 1.3170 region. "As a consequence, it starts this week with attention focused on 1.2835/03 supports. These are now exposed", she assesses. The analyst also suggests that a breach of those levels would accelerate the downside to the region of 1.2472/33 Jane Foley, strategist at Rabobank, shares the same opinion, and sees "risks of pullbacks in EUR/USD potentially to the 200 day sma at EUR/USD1.2836". It is worth noting that the bank's forecasts are 1.29 in a 3m view, 1.30 in 6m and 1.35 in a horizon of 12m.
A different focus is brought to the table by Lee Hardman, currency analyst at BTMU, when he comments "further signs of stability returning to the eurozone were presented by Fitch who reported that U.S. money market funds, whom provide an important source of U.S. dollar funding, increased their exposure to eurozone banks for the third consecutive month in September. However, exposure at around 11% of total holdings still remains well down from a peak of more than 30% in May 2011".
Technically speaking, the Bullish Percentage Index (BPI) developed by FXstreet.com is extending its downtrend, showing that only 36.84% of euro-based pairs remain in bullish mode on point and figure charts. The development of the recent bearish divergence between the BPI and some euro pairs continues to weight on the bloc currency.
… Moving forward to Tuesday
Interesting docket will start with Retail Sales in Germany, preceding the UBS Consumption Indicator in Switzerland, ahead of the estimated GDP figures in Spain during the third quarter. German jobless rate and a key Italian 10yr bond auction will follow. In the second part of the European morning, Business Climate and Consumer Confidence in the euro zone would put gauge investors' confidence.