EUR/USD Converges For Further Selling; Below 1.2760 Shorts Won't Panic

Includes: ERO, EU, FXE, UDN, UUP
by: FXstreet

The EUR/USD opens the European session a tad firmer after regaining the 1.27 handle, with sellers having failed to extend beyond the 1.2660, new 9-week low. The Euro short covering from Tuesday occurred as the German newspaper Bild Zeitung claimed that Germany plans a €44 billion aid payment for Greece. Berlin denied it.

The key date on the Greek parody has now moved to November 20th, a date all traders should pencil-in to enjoy some two-way street EUR/USD volatility. As Kathy Lien, Co-Founder at BK Asset Management, notes:

Euro area finance ministers will be holding a special meeting that day to decide whether the next aid payment for Greece should be released. Greek officials are confident that money will be disbursed on November 20th or shortly thereafter. But given the reluctance of the IMF and European officials, we fear that Greece may only receive enough aid to tie them over until they reach a further agreement with the Eurogroup and IMF.

Meanwhile, U.S. negotiations over the 'fiscal cliff' are continuing, as noted by FX Westpac Strategists Sean Callow,

Friday's meeting between President Obama and Congressional leaders could be the next major event on this front.

Mr. Callow notes:

At this stage, there is a sharp divide on income taxes, with Republicans willing to consider limiting writeoffs and other loopholes but not higher marginal rates. Treasury Secertary Geithner today said tax rates would have to increase on the highest earners as capping deductions would not raise enough revenue.

Unexciting economic calendar in Europe; FOMC eyed

A relatively quiet London session ahead in EUR related data terms, starting with French CPI at 07:45 GMT, followed by EU industrial production, Greece and Portugal GDPs at 10:00 GMT, and Portugal unemployment figures 1 hour later. Jobs data for the U.K. at 09:30 GMT and the inflation report one hour later could also bring some volatility to the EUR/GBP cross.

Spain and Portugal will go for a full strike all day long, while Italy and Greece are also planning work stoppages and demonstrations, in a historical international coordination not seen before in the Iberian Peninsula, Reuters says.

For the EZ sovereign debt auctions front, Germany will sell up to €5B in 2 year Schatzs [Treasuries], which have already reached previously zero or negative yields, while Italy will try to sell up to €5B in long-term bonds, with 10 year bond yields still stable around 5%, last at 4.98%. Later on in the U.S. session, the FOMC will publish its latest minutes.

EUR/USD, short-term bearish trend firm

Technically speaking, according to In-House Chief Analyst Valeria Bednarik,

the downside remains favored as long as 1.2740 resistance holds, with a break below the 1.2660 daily low exposing 1.2610 as the next big support.

Sean Lee, Founder at FXWW, thinks that

the downtrend is still very much in control on the short-term charts, so selling rallies back to resistance areas around 1.2740 makes the most sense to me.

Another Technical Strategist, William Moore at RBS, also agreed on the possible continuation of the selling pattern for now, suggesting that

the downside targets of interest lie at 1.2610 and 1.2477, which are quite simply retracement levels from the previous rally. Stop losses can quickly be tucked above 1.2740 and utilized on a daily close basis.

Our short-term analysis sees now immediate resistance to the upside at the recent session/yesterday's highs at 1.2730, followed by Monday's and weekly highs 10 pips above, and November 06 lows at 1.2762. To the downside, nearest-term support lies at recent session lows of 1.2700/02, followed by Friday's lows at 1.2690, and yesterday's lows at 1.2657.

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.