Euro Does Not Suffer From Vertigo ... For Now

Includes: FXE, UDN, UUP
by: FXstreet

Positive sentiment surrounding the bloc currency remains intact, feeding on the spiraling risk appetite that somehow emerged in mid November, where the EUR/USD was transiting the 1.2660 region, climbing almost five big figures to levels above 1.3100. It took only two sessions for the euro to leave behind the psychological mark at 1.3000, buoyed by PMI prints above expectations and a general optimistic tone among traders. This morning, services PMI prints have followed suit giving the single currency another excuse to climb to levels just shy of 1.3130

… Technicals vs. reality

Question remains, however, whether the euro would find more fuel to sustain this upside.
From the technical angle, the cross is approaching a solid barrier represented by the area at 1.3150 and beyond. As Karen Jones, expert at Commerzbank, puts it "EUR/USD continues to grind higher and the market remains well placed to tackle key resistance at the 1.3150/80 zone. This consists of the recent high and triple Fibonacci retracement and this remains tough overhead resistance". The expert adds that a break above 1.3180 would then target higher levels at 1.3487 and 1.3519

The other side of the prism shows the Greek clouds gradually shrinking amidst political back-and-forths and apparent minor technicalities that still circle around the recent debt matter. Spain is now seen as a relegated menace. Everybody in the FX community knows the fragile condition of the Mediterranean economy, hammered by its record high levels of unemployment and the underperformance of its fundamentals. However, everybody seems to ignore it. It is curious how fast the 10-year benchmark bond yield dropped from levels above the critical 6.0% to the actual 5.20%, and continued to trend lower. The same case scenario emerges from the Italian debt markets and these are the major drivers behind the actual upside in the cross.

The ECB meeting is posed to be (again) a non-event, thus removing a major potential obstacle for the euro bull-run and clearing the way for Friday's Non-farm Payrolls, where the cross would face some pressure via the greenback, as the so called 'fiscal cliff' has been utterly ignored as demonstrated by the recent price action.

All in all, it seems that these heights are not frightening the euro traders at the moment, thus further upside should not be ruled out.

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.