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FXstreet.com (San Francisco) - The euro declined for the first time in five weeks against its U.S. counterpart as concern increased that the global economy may be slowing, depressing investor appetite for risk.

The path of least resistance for EUR/USD in the short to medium-term appears to have shifted to the downside as price pulls back from a recent 4-month high, and as the Daily RSI at 66 crosses back below the overbought mark and leaves scope for a deeper downward correction in the week ahead.

From a technical standpoint, "EUR/USD closed the week back below 1.3000 which is something of a psychological victory for the bears," observes Sean Lee, founder of FXWW. "Technical resistance is now very strong at 1.3070/80 which is the double-top neckline and a 61.8% retracement level and selling rallies is preferred whilst this level caps. Obvious intraday support lies at 1.2915, which was last week's low."

The political spotlight in Europe remains on Spain, as the nation is reportedly on the verge formally asking for assistance. "We do not anticipate a formal request by Spain until mid-October at the earliest," says Marc Chandler, Global Head of Currency Strategy at Brown Brothers Harriman. "At the end of next week, the three month review of Spain's financial system is expected to be completed with the outcome being a clearer understanding of the banking system's recapitalization needs."

Mr. Chandler adds: "Spanish officials insist that the 100 bln euro backstop already granted will prove more than sufficient. There is some desire to use the 'excess' for other purposes, but this will prove contentious."

Technically speaking, he notes: "While the technical tone has weakened, we still do not see a strong sell signal for short-term participants. Medium term participants may reduce euro exposure or short dollar hedges into euro strength. A move now back above $1.3080 would could see another cent advance."

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