By Fast Brokers – The EUR/USD has decline back towards its 1.27 level as optimism fades quickly in the wake of the EU’s announcement of a $1 trillion rescue package. The functionality of the package has many unanswered questions (please refer to blogs.fastbrokers.com for further analysis), leaving the EUR/USD in a vulnerable position technically as Thursday lows inch closer. Hence, the currency pair is by no way out of the woods at this point and investors should continue to watch EU bond yields as we mentioned in yesterday’s commentary. Meanwhile, the risk trade as a whole is being dragged lower by the SCI officially entering a bear market. Chinese pricing data popped higher and the central bank issued a comment suggesting further tightening and Yuan appreciation could be around the corner. Hence, it’s becoming clear that China may need to get more aggressive in terms of slowing down its economy, a negative for global equities and the risk trade since China has been an engine for the global economic recovery. Investors and analysts will continue to dissect the EU bailout package with most people unsure whether to interpret the action as a positive or negative development. Either way, the $1 trillion is massive and should have a long lasting impact on the FX markets. The EU will light up the data wire tomorrow by releasing prelim GDP data. Should fundamentals stay strong this could help buoy the EUR/USD and keep it above Thursday lows. On the other hand, should prelim GDP disappoint this could result in immediate risk aversion. The BoE will release its inflation report tomorrow followed by U.S. trade data, meaning the FX markets should remain active tomorrow.
Technically speaking, the EUR/USD wasn’t been able to hold 1.30, a disconcerting technical near-term development. However, the currency pair is still trading above Thursday lows, meaning a bottom could form from present levels. As for the topside, the EUR/USD faces a wealth of downtrend lines along with the psychological 1.28 and 1.29 levels.
Present Price: 1.2730
Resistances: 1.2734, 1.2758, 1.2779, 1.2807, 1.2819, 1.2854
Supports: 1.2704, 1.2671, 1.2652, 1.2622, 1.2603, 1.2581
Psychological: May 2010 low, March 2009 lows, October 2008 lows, 1.28, 1.27, 1.26, 1.25
(click chart to enlarge)
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