The euro weakened further on Monday, although it managed to hold above last week's lows versus the dollar, amid lingering concerns over Greece and with no sign of when Spain might request aid. The potential impact of Hurricane Sandy adds another uncertainty that is not helping risk assets.
An extremely light calendar prevails in both Europe and the U.S., coupled with the inactivity in Wall Street due to the landfall of the hurricane, so trading is expected to remain subdued for the rest of the day. Meanwhile, Spanish and Italian premiers Rajoy and Monti meet today to discuss the prospects of Spain bowing to pressure to request a formal bailout.
Euro hovers around 1.2900 in quiet trade, 200-day SMA key support
Despite the persistent pressure over the shared-currency, the EUR/USD has managed to hold above its last week's low of 1.2881, having spent most of the day inside a very-tight range around the 1.2900 psychological level. On a wider view, the euro remains within its well-known range between 1.2800 and 1.3172, where it has traded since mid-September.
In the absence of a strong catalyst, the rangebound phase should persist in EUR/USD, with the short-term bias turning bearish while below the 1.3000 mark. On the downside, the 200-hour SMA around 1.2835 should offer strong support in case of deeper pullbacks, followed by 1.2800.
In this regard, the TD Securities team notes that the EUR has been weighed along with the rest of its risky peers, and the widening of eurozone peripheral spreads is confirming the move. "The single currency's grind lower over the past week has moved within a tight bear channel and continues to leave a bearish short term bias. That said, there looks to be more significant support near 1.2840/50 (recent lows, 200-day MA) that could provide a decent floor".
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.
Meanwhile, Marc Chandler, Global Head of Currency Strategy at BBH argues that the near-term range appears to be 1.2880-1.3030 within the larger 1.28-$1.32 broader range. "The pattern by which the euro moves in the opposite direction on Monday from Friday is now nearly two months old", says Chandler. "If the pattern is to remain intact, the euro would have to rise on Monday".
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
