What is the EUR’s next price?

Worrying about a European recovery has very much come to a standstill, with trading ranges nothing to write home about. The Euro has extended its European morning rally, moving the price above its 10-DMA (1.3540), triggering some weaker stop-losses, and eyeing the technical orders on top where there are EUR’s to go. Thus far, regional trading ranges have been relatively contained, however, the market is short EUR’s long dollars and that, together with the lack of meaningful government bond issuance this week is a “proper recipe for a EUR short squeeze”.

So far, any EUR short covering has been rather modest. Even the credit rating agencys giving a temporary thumbs up has had a limited risk effect. Yields at this mornings Spanish auction were sharply higher and is yet to have an impact on the EUR outright. Any pop above the O/N high could generate a bullish follow through, but further failure at these levels will only encourage comfortable renewed short selling.

Euro-zone debt concerns are being overlooked so far intraday, perhaps we may have to leave it up to North America? That would be a switch for the first time in probably two-weeks. Wider risk appetite remains constrained following the “super committees” failure and the upcoming Asian and US holidays. With month-end next week, the market will be witnessing panic, illiquid premium buying and selling, confusing even more the whole market thought process. It’s difficult enough trying to keep a handle on the legal requirements and mandate of the ECB and all the pawn brokers that are offering varying opinions on what the “lender of last resort” role should be.

These markets are lacking leadership. All the important players continue to wait and still there is ‘no horizon”. The worlds largest FX bank has raised its forecast for next year and indicated that the most likely scenario was that the “EUR remains intact in its current form despite the ongoing debt crisis”. The currency will eventually end up trading close to here ($1.35), previously they had been targeting $1.23, however it does expect the EUR to at least “dip” to their previous target level.

This morning we get Q3 US GDP. The market is expecting a headline to be revised lower (+2.4% vs. +2.5%), but with better details. Later in the afternoon its the FOMC turn, the minutes may provide further indications on the prospects for additional easing measures.

Forex heatmap

Other Links:
Crude and Gold sideswiped by Rabid Dollar
CAD falls, now playing catch-up

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell