The yields on Spanish and Italian debt are down, spurred on by Notwotny comments that the ESM (European Stability Mechanism) might be given a banking license. The idea is if the ESM were recognized as a bank it would be have access to ECB lending. They can then lend and provide stability to the troubled nations (however they line up). All problems solved. EURUSD rallies (just joking). Meanwhile, down on the farm IFO out of Germany was weaker, UK GDP was weaker.The Fed’s hints of the next QE round is around the corner (suggesting things are getting worse not better) and although yields are down, Spanish yields went from 7.62 to 7.49% after rising from 6.57% on July 11th. I guess it is a step in the right direction at least?!?
So where do we start from a technical basis? The price for the EURUSD is back at the 100 hour MA. That level comes in at 1.2154 currently and the early NY traders took the price above the level triggering another push to new highs. That high came in at 1.2170 – above the 38.2% of the move down from the July 19th highs, but below what was a floor area from earlier in the month (see hourly chart).
Sellers quickly emerged (probably the ones who triggered the stops) and pushed the price back below the 100 hour MA (at the 1.2154 level) and the price has not rotated above this important “line in the sand” since then (see 5 minute chart below). This is indicative of a corrective market that may be a bit reluctant to go too far too fast (or to go any higher at all). Stay below this level will take the momentum away from the surge higher today. Don’t be surprised if the price stays below that level for the rest of the day.
On the downside, the price is approaching a key support level at the 38.2% of the days trading range at 1.21249. This is the first test to see if the buyers are “really” anxious to stay in control. If the price holds this level, bull and bear traders will have a battle between support (at the 38.2%) and resistance (at the 100 hour MA). There should be stops above or below each key level. A move below the 38.2% will next target the midpoint of the days range at 1.21116. The NY high from yesterday came in at the 1.2114 level yesterday which increases this levels importance. Bulls/buyers would not be too pleased on a move below this level today.
On the topside, you have to respect that 100 hour MA on a break. So I would expect stops on a break with the 1.2175, 1.2181 and 1.2188 levels that were key low from July 13, 16 and 17. A move above that and a “look see” at the 200 hour MA (green line in the hourly chart at 1.2204 is a possibility but that would be a stretch.
