Euro is resilient to negative news
It was a quite European session with risk appetite pushing the market higher. The Euro temporarily stalled at 1.30, Pound remained at 1.5350, Aussie lingered at 0.87, and Yen gave back some gains slipping to 87.00, while the Loonie remained at 1.05.
Despite negative news in the Euro-zone, the 16 nation currencies staggered a rally which pushed the unit to 1.30. Two pessimistic events materialized in the markets that could once again put fear in the Euro for the upcoming future. First off, Hungary failed to reach an agreement with the IMF to extend its €25.9 Billion credit line. The following raises a pressure for the country to raise capital as investors are less likely to keen on supporting more risky debt. Despite the infliction of negativity that this brings, the pessimism should be kept at minimum due to the fact that Hungary is not yet part of European Monetary Union.
Sovereing Debt issues continue
Sovereign debt issues in the Euro zone are continuing to proliferate. This time Ireland, one of the nations categorized as PIIGS (Portugal, Italy, Ireland, Greece, and Spain), was the latest nation to be downgraded by a credit agency. Moody’s downgraded Ireland by one notch to Aa2. The following scenario makes borrowing for Ireland more expensive. So far, every nation within the PIIGS was downgraded by credit agencies, in exception for Italy since the troubles in Greece emerged. This might put more fear in the market and render downward pressure on the unit, however; the Euro has been resilient in its advance so far. Look for the Euro to start creating traction as it sits near an important 1.30 psychological level.
How is the Market thinking?
The short squeeze rally at the beginning of the US session was masked by an assumption that the EU will outpace the US in its growth for the upcoming future. Furthermore, looking at IMM short position contracts: we see EUR net short to be cut almost in half to current 38.9k contract. The bandwagon of reducing Euro exposure to the downside has emerged.
What to look for the day
With a lack of any substantial economic indicators for the remainder of the day, expect the market to start to digest the information in the Euro-zone. Furthermore, technical analysis tends to contribute more towards price actions in those kinds of days. Look for key, resistance and support levels to push the pairs in opposite directions.
Disclosure: Long AUD/USD