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The EUR moved higher overnight, breaking through the 1.3100 barrier as Moody’s kept the Spanish rating at Baa3, while continuing with a negative outlook.  With the EUR already well bid throughout the day, this news kept the “risk on” momentum positive.  With Spain not being downgraded to “junk” status, there won’t be an need for selling of Spanish debt.

Having broken through the 1.3100 level, the target is now the recent high of 1.3170-80.  As we move closer to the EU Summit that begins tomorrow in Brussels, it has become apparent that Spain will make a request at this meeting.  While that request will not be for a full bailout, it appears that Spain will request a credit line, which will satisfy a requirement for the ECB’s OMT bond buying program.  Germany seems to be in agreement with this idea, since it doesn’t require borrowing funds from the ESM.  This credit line, actual titled the Enhanced Conditions Credit Line, was introduced yesterday as a new part of the ESM toolbox.

Risk on has been the order of the day.  Strong earnings reports in the US enabled the US Stock market to finish strong and this positive tone continued in Asia as the Nikkei and Hang Seng were also higher overnight.  The EUR strength also helped the AUD move higher.  The Canadian Dollar did not participate in this rally as it remained pressured due to comments from Bank of Canada governor Carney.

Carney’s warning that the global economic slowdown was threatening to spill into Canada gave traders reason to sell the “loonie”.  He also stated that the BOC revised economic forecast which is due to be released next week, “will take into account the impact of this uncertainty”.  Having been perceived as being hawkish lately, the comments yesterday make it seem as though the central bank may back off a bit from their tightening basis and turn neutral.  The Bank meets next week and it is possible that the pressure will remain on the CAD until that meeting.  Resistance in the USD/CAD is at .9880, then .9905.  Support would be at .9840 and .9810.  Only a close below .9790 would negate this present upward move.

Expectations for Spain requesting some form of aid at tomorrow’s Summit should keep the EUR bid throughout the trading day.  The first line of resistance would be at the 1.3120-25 area, then 1.3140.  The market looks to be slightly overbought on the hourly charts, so a pull back towards 1.3080 would not be too much of a surprise.  To reverse this upward trend the EUR would need to close below 1.2975.