Euro: Catalyst Needed

Includes: FXE
by: FXstreet

A key day has arrived for the single currency, with promises of fireworks starting in the European afternoon with the ECB statement and later press conference by its President Mario Draghi, followed by the FOMC minutes this evening, after the Fed announcements of the third round of quantitative easing.

Risk trends are pushing markets higher on Thursday, and the euro is following suit marching gallant around 1.2950 amidst the usual late rumors regarding the Spanish bailout. Catalonian leader Artur Mas was hitting the wires earlier commenting "the bailout is inevitable", fanning the flames ahead of the ECB meeting. In the view of Peter Kinsella, researcher at Commerzbank, "a Spanish assistance programme has already been broadly priced in by the foreign exchange markets. However what has not been priced in is the reaction of the ECB". Having said that, it is worth noting that a call for aid by the Spanish government will activate the new OMT programme in the ECB's desks, triggering a bullish event for the shared currency.

… But which direction?

Opinions among analysts are far from unanimous and point to both possible scenarios. Karen Jones, expert at the German lender Commerzbank, believes the cross would find strong resistance in the 1.2974/1.3000 region, thus running out of steam and declining to test the trend line support at 1.2700; however, the analyst leaves the door open for further upside when comments "at this point should a recovery through 1.3050 be seen, we will have to allow for a retest of 1.3173/77". On the flip side, Gareth Berry, analyst at the Swiss bank UBS, maintains the bullish stance on the cross when affirms "the risk is for resumption of strength as trend indicators are still bullish. A break above 1.2988 would expose 1.3031/85. Support lies at 1.2804/1.2758". Valeria Bednarik, analyst at, emphasizes the relevance of stop-losses orders and suggests "with 1.2880/1.2970 area dominating the week, some stops are below 1.2880 but bigger ones come around the 1.2830 area: if below, the pair may attempt to test 1.2745… To the upside, buyers will surge above 1.2970, aiming to push price towards 1.3030 first, and even near 1.3100 if the pair gathers enough momentum".

… More to come tomorrow

Following another day of Chinese holidays due to the National Day, the BoJ will communicate its interest rate decision, expected to remain in the zero-0.10% range. After that, a very light docket awaits for the euro zone, as German Factory Orders are only due.
The biggest event in the FX will follow, when the U.S. Non-farm Payrolls figures hit the markets. This result has become even more important after August poor +96K, considered the trigger for the later Fed announcements of QE3. This time consensus expect the US labor market to have created +113K jobs during September, and an uptick to 8.2% from 8.1% in the jobless rate.

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.