Why is the EUR at these levels?

3

The EUR continues to rally bouncing above and below the 1.3100, after fallen as low as 1.3040 during overnight trading.  So why is the EUR at these levels?  It seems the market has gotten over all the FOMC rhetoric from yesterday and pretty much ignored the US data released this morning.  So why are we rallying?

It seems that Euro zone leaders at their meeting today are complimenting and cheering each other for the accomplishments they have achieved in 2012.  Heading that list is the recent approval of the ECB supervisory oversight deal that will give them power to watch over up to 200 Euro zone lenders, as well as the funds that have been distributed to Greece.

As the glad handing continues, French President Hollande has been very open of his praise for Italian PM Monti for his role in the June Summit.  German Chancellor Merkel and Luxemburg PM Juncker were also applauding the decisions made this week.  So, now that they are happy with themselves, we shall see how things go moving forward.

The EUR once again is having problems breaking and holding 1.3100, but it isn’t going very far down either.

The new EUR bank supervision deal, with the ECB as the “watchdog”, will go into effect hopefully by the end of 2013.  According to reports in the Wall Street Journal, the ECB will have responsibility for banks that have at least EUR 30 billion in assets, make up more than 20% of their countries GDP, or operate in at least two countries.  One thing that will not happen is the ECB will not be able to put funds from the EUR 500 billion rescue fund into “bad banks” directly.  This was a sticking point with the German delegation and only after this was agreed did they go along with the supervision deal.

As Europe comes to their day’s end, the EUR still remains above the 1.3075 level.  There have been a few attempts to crack 1.3100 and each has been repelled.  A break of 1.3100 sets the target at 1.3170, the September double-top within the next few trading sessions.  Support on the downside appears at 1.3030, and a close below there would make the currency vulnerable to a retest of the 1.2925 area.  Daily and hourly RSIs are around 60, so there are no hints there.  There is a small head and shoulder pattern that concludes at the 1.3125-30 level.  The break there does suggest a large move higher.

If we can’t go up, we should go down.  My “gut feeling” is we are toppish.  The continuing negotiations over the Fiscal Cliff hang over the market like a storm cloud waiting to erupt.  It doesn’t seem like we’ll have a quiet December after all.

Further reading: Focus Shifts Back to Cliff
Get the 5 most predictable currency pairs

About Author

Matthew Lifson is a Foreign Exchange Trader and a Market Analyst. with Cambridge Mercantile Group.

3 Comments

  1. Hi,

    Very nice overview. I agree that market doesn’t know what direction to chose. Today we have many good news and EURUSD could run easily. But did not. So my conclusion is that we have double top formation (even quadruple top). And I think that this EUR rally this week was made mainly cuz of FOMC expectations. But this time, gold, stocks and other risky assets were sell off. So maybe this is why today we hadn’t seen 1.31. I think market is waiting for some trigger (like downgrade). Of course reaching fiscal cliff deal before X-mass it’s just a pure illusion. And it will be done only if S&P dive 5-7 % with panic across all markets. What do you think ?

  2. Pingback: EUR/USD Prefers the Weaker Side of PMIs | Forex Crunch

  3. peter matthew on

    I think we can see the Euro Pair heading higher over next year in terms, some resistance can be seen at 1.3220 and above that level should provide some slackening to the downside after this area of support level the Euro Pair should find room for further increase in Price towards 1.3420.