"We cannot argue that the EUR is consolidating the July/September rally anymore," TD Securities' analysts Greg Moore and Shaun Osborne said in a recent report. And it's true that despite the EUR/USD closing on Friday on for its third downward week, the negative sentiment wasn't proven at all. But now, it seems the EUR/USD is definitely knocking on a bearish door.
The euro closed the week trading quietly between 1.2700 and 1.2725 against the U.S. dollar after joining a hard battle for the 1.2740, which took the EUR/USD from 1.2790 in Friday's Asian session to reach two-month lows at 1.2690 just at the NY opening bell.
In this line, Osborne and Moore pointed out that "this week's break through support in the low 1.28 area (200-day MA and the September/October range base) argues more strongly and obviously for lower EUR levels."
And TD Securities affirms that the 1.24 is now open. "The break out from the sideways range trade (a double top) targets a drop to the upper 1.24 area. A second weekly close below the 40-day MA supports the negative outlook now."
The weekly Commitments of Traders report shows that EUR shorts increased to 67K in the last week to Tuesday vs. 58K in the previous one. So it seems the market is selling euros -- and taking into account that the aggregate USD net short position continues to grind lower and now is the smallest net position against the USD since late August -- buying dollars.
As for short-term, Valeria Bednarik, chief analyst at FXstreet.com, recently commented that "immediate support and probable next target comes around the 1.2650 price zone, while once below, next level comes at 1.2610, a 50% retracement of 1.2040/1.3170. The upside now should remain capped by the 1.2740 price zone."
Wall Street Closed Mixed, Focusing On Fiscal Cliff
Stocks rallied in the beginning of the session on hopes that President Barack Obama would say something relevant in his speech on economic conditions and the Fiscal Cliff, but after his speech, investors were trading on defense, expecting long talks.
President Obama invited congressional leaders from both majority parties to the White House next week to start negotiations on economic and fiscal issues, according to his speech late Friday.
The DJIA fell 0.06% on the day, or 7.99 pts to 12,803.33. The Dow lost 2.12% on the week. The S&P 500 advanced 0.17%, or 2.34 pts to close at 1,379.85. On the week, the S&P closed down 2.43%. The Nasdaq recovered the 2,900 line after gaining 0.32%, or 9.29 pts, to close at 2,904.87. In the last five days, the Nasdaq Composite declined 2.59%.
The Week Ahead
As Richard Lee from FXstreet.com commented in a recent report, "a look ahead to next week's economic release schedule shows the potential for plenty of market moving opportunities." So here are five events that investors won't want to miss.
Finally, FXstreet.com's big banks, brokers and independent experts forecast poll has been just launched, and 84% of the pool shows bearish forecasts for the EUR/USD.
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.