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Recommendations:
- Buy EURUSD in between 1.2750/1.2735 , SL below 1.2720 with targets 1.2770, 1.28, 1.2850.
Paradigms:
- The EURUSD will not make new highs (higher than 1.317) until Spain requests a bailout and the OMT is activated.
- The dollar will tend to strengthen at least until the US elections, and possibly after it.
Analysis:
Yesterday the market continued its downtrend in EUR/USD and confirmed that the 200DMA has been broken. The market is nervous about Greece and the stability of its parliament. In parallel, the absence of a Spanish bailout request is increasing the likelihood of a Spanish downgrade by the rating agencies. If Spanish bonds are rated as junk, Spain and its banks would fall into turmoil (very bearish). But for now, the markets are only slowly starting to price this potentially catastrophic event. Spanish bonds went up yesterday, but remain within the safe area. A move above 6% (above the upper Bollinger band, see chart) would confirm that the sovereign crisis is back to the main stage and would enable a move in EUR/USD as low as 1.24 and potentially below should other issues arise. The market is slightly bearish this morning but a rebound is imminent. Technically, the EUR/USD is in a downward channel and buying today moves towards 1.2750/1.2735 (the bottom of the channel, 61.8% Fibonacci retracement) will provide a low risk trade since the market will probably return towards 1.2770/1.280.