After the unperturbed 7-week range in EUR/USD, the market finally made a major technical statement. The inequality between buying and selling forces widened in favor of the last, with a weekly close below the 1.28 area confirming the bearish euro sentiment.
The straw breaking the camel's back in detriment of a weakening euro is, in large part, explained by the realization that none of the two key components for the single currency to temporary alleviate its pain have materialized.
Making a long story short, Spain's stubbornness to apply for an external financial rescue, coupled with the scarcity of funds in Greece to meet its most imminent debt repayments this week, have exhausted investors' patience.
Looming in the horizon, we have louder yet still subtle noise on the U.S. fiscal cliff, a very real threat but still not close enough for markets to start pricing it into the U.S. dollar, it seems. For now, 'the benefit of the doubt' that a bipartisan compromise may be reached, if only for a temporary avoidance of the 'cliff', is enough to sustain U.S. dollar buying interest.
As NAB Strategists note, rhetoric and substance in the U.S. are still a long way apart. At the moment, the pressing issues in Greece, and disappointment to activate a bond buying campaign in Spain by the ECB, is what keeps the euro in a dark spot.
Greece passes budget bill; faces default over €5 billion
On Sunday, the Greek government approved its 2013 national budget, confirming additional cuts on pensions, salaries and benefits. The reaction has supported the euro above 1.27. However, a great deal of reservation to commit on long positions remains as Greece faces a default scenario this week.
The Financial Times opens its front-page today reminding its readers over 'the battle to avert a €5 billion default' this week. Greece should find a way to raise as much as €5 billion in order to avoid default in a series of debt repayments. The Troika and European paymasters, including Germany, are still stuck in an impasse as to how to ease the country's debt burden and when to unlock the next aid tranche, amounting €31.5 billion. German Finance Minister Mr. Schauble told reporters the outcome is uncertain.
Euro looks heavy; weekly poll hints downtrend to resume
According to Valeria Bednarik, Chief Analyst at FXstreet.com:
Technical readings for the EUR/USD in the 4 hours chart shows indicators in negative territory, losing some of its latest bearish momentum, while price stands capped below 20 SMA. Having tested 1.2689 on Friday, a break below that level would open doors for a test of next Fibonacci support around 1.2610.
If the EUR/USD is to receive a substantial lift, as things stand, it is most likely to come from Greece-positive headlines. Although, only one that clarifies when the next disbursement to avoid default may come will truly engineer enough strength to scare some committed sellers away from the market. EUR/USD sellers are reportedly camped ahead of the breakout point from last week at 1.2800, with a first 1.2750/60 wrestle - the September 9 low - also guaranteed.
In a weekly poll in EUR/USD, over 85% of the respondents shows bearish forecasts for the EUR/USD. FXstreet.com contributor TD Securities, suggests that last week's break through support in the low 1.28 should now target a drop to the upper 1.24 level. Marc Chandler, Global Head of Currency Strategy at BBH, sees downside objective just above $1.26 and $1.2475.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.