Forex: EUR/USD trapped between Greece and fiscal cliff; still bearish

Share | (San Francisco) - Another day and a new fresh 2-month low in the EUR/USD. The Euro has closed its 5th straight negative day against the Dollar but in practical terms, the pair remains trading quietly above 1.2700.

Early in the European session, the EUR/USD set a fresh 2-month low at 1.2660 amid uncertainty on how, when, and under what terms Greece will receive its next tranche of aid. However, media reporting that Germany wanted Greece to receive a single €44 billion sent the pair above the 1.2700. After that, the pair traded calm between 1.2700 and 1.2720 in the American session.

Wells Fargo's Head of Currency Strategy Nick Bennenbroek considers that the USD has strengthened with the markets focus again turning to the Eurozone debt crisis. Bennenbroek stated that peripheral Eurozone bond yields are under some pressure again today, with Spanish and Italian ten year yields both higher. He notes that the Euro is down, while Scandanavian currencies are the weakest G10 currencies today.

Overall, Wells Fargo's analyst highlights the general risk off sentiment across asset classes, with Asian and European equities down. Between EZ jitters and the US fiscal cliff, Bennenbroek maintains his bias for USD strength.

In the same line, Brown Brothers Harriman analysts have noted that EUR/USD made a new cycle low today near 1.2660 and is slowly and steadily nearing their 1.2500 target. They affirmed that just below that level is a retracement objective near 1.2475 from the big July-September rise in the pair and a break of which would open the door for a target of the July low at 1.2045.

BBH pointed that negative euro sentiment continues amidst further delays to Greek aid as well as more reports of poor Eurozone economic data.

EUR/USD remains weak

As for the short term and in the hourly chart, the EUR/USD shows price breaking back below a bearish 20 SMA while indicators turn south around their midlines, as price approaches daily low; "In the 4 hours chart latest spike was contained by 20 SMA that continues heading south as well as technical indicators," comments chief analyst Valeria Bednarik. "The downside remains favored for the pair, with a break below 1.2660 exposing 1.2610 next strong support zone."

On the fundamental field, analyst Richard Lee, believes that there is 3 things that has been supporting the Dollar today, the Home Depot better than expected earnings report, the meeting between Obama with policymakers and business leaders and the US retail sales expectations.

Related info:

The Fiscal Cliff You Didn't Know About by Richard Lee
Germany Not Immune to EUR Troubles by Dean Popplewell
Bild story on bundled aid payment for Greece boosts sentiment t by Katarzyna Komorowska

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Forex and Currencies

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As of 4/22/2014, 04:07 PM