Is the euro in serious technical trouble? (EUR/USD, FXE)

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In early trade risk assets and the euro have come back under fire again as traders reconsider last week's European summit as more disappointment than triumph.

The euro dropped over 160 pips in the Asia and European sessions before finding support around the $1.3260 level (previous level twice in the past, 30 minute chart).


The Financial Times is eloquent in highlighting five key failure points of the European summit:

1. "The decision to set up a fiscal union outside the European treaties will do nothing whatsoever to resolve the euro zone crisis."

2. "If you want a fiscal union, nothing less than a full treaty change will do."

3. "A fiscal union set up outside the European treaty would face severe legal and practical limitations, nor can it issue euro zone bonds."

4. "We now have no treaty change, no euro zone bond and no increase either in the rescue fund or in ECB support."

5. "The EU fell short on every element of a comprehensive deal."

With the European Summit now behind us, what has changed? The EU basically stayed off a Lehman-scale failure in the near term but has once again kicked a solution for the debit crisis down road.

We still see continued pressure on the European Central Bank to buy bonds should the outlying countries come back under pressure.

Will the IMF step in? What can the IMF do to help the sovereigns?

Additional pressure stems around the S&P rating agency warnings it made last week concerning the ratings of European countries. S&P said that it would evaluate the progress made from the EU Summit before making any decisions.

It is highly expected that the rating agency will be disappointed with the lack of progress made by the summit leaders.

Traders should watch out for the real possibility of downgrades this week, causing traders to liquidate risk and increase money flow to the U.S. dollar. Look for the EUR/USD to accelerate its sell-off.

The latest corrective rally appears to have stalled out by $1.3260 and it looks like the bears want to challenge the critical October lows at $1.3145.

Any substantial break below $1.3145 is will open the door for a deeper pullback over the coming weeks/months into the lower $1.2000 level.

The euro is in serious trouble from a technical viewpoint. Only a daily close above $1.3260 will give the bulls a chance to give the euro a foothold for possible upswing.

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

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

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