EURUSD: key resistance in play again

The key pivot area this week remains the old 1.2620 low, which the market tried to take out this morning. Will the Spanish bailout fiesta last or is it time to sell the fact?

The market anticipated this weekend’s Spanish bailout quite well, as it was telegraphed before-hand. Today’s open saw the market trying to add further to the celebration of yet another bailout and the hope that the contagion will never catch fire across the Euro Zone as just in time extend-and-pretend will always come to the rescue. Another test of that theory arrives already on Sunday with the election in Greece. Will a pro-Euro coalition emerge or do we see more uncertainty and deadlock despite the second attempt to “get the election right”.

Another thing not to be forgotten (in terms of risk appetite and the USD correlation there-to) was Bernanke’s testimony last week, in which the Fed chairman was as cagey as possible on the need for further Fed support of the markets in order to avoid unwanted political attention from Congress in this election season. The irony here is whether the Fed, in its avoidance of committing more strongly now, actually helps set up the economic weakness that puts a more Fed-hostile Republican president in the White House in November.

Chart: EURUSD
EURUSD toyed with the 1.2620 resistance last week, the old low for the year after last week the pair refused to stay below the 1.2500 area. The top found in Asia overnight was actually the 0.382 Fibo of the tremendous near-1000 pip sell-off from early May. Bears need a quick sharp move and close well below 1.2620 again for a reasonable reversal pattern to trade from, while bulls would be happy to see a recovery above the higher today and then through the old ascending trendline (thin purple line) that was broken on the way down.