Not so much to say this morning about EURUSD. Not even a clear bearish or bullish or neutral mood this morning!

Analysis: The market has sold off during the Asian session because expectations for a Spanish bailout request and a Chinese rate cut during the week end did not materialize. Positive export numbers for the Chinese economy and inflation numbers that did not show further aggravation of deflationary forces should have given a positive tone to the market. But it didn’t. The main question in our view is how long can the market wait for Spain to request a bailout? The market displays a volatility contraction trend either in EURUSD or in the Spanish bond yields: participants are less and less active because conviction is falling on both the bull and the bear side. The wedge pattern is getting tighter. We expect the volatility to continue falling this week, and at some point we should switch from trading the rebounds on the wedge edges to trading the volatility breakout. We should keep an eye on the bond market to give us hints when the market will start making its move.

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Good luck to you all.

The NAB team has published its latest FX research note in which shows long EUR/USD on the Monday morning pullback at 1.2900. “Our target is a fresh high above 1.3172, being mindful of the 200 day moving average at 1.2825 and the recent intra-day low of 1.2804, our stop is 1.2775” NAB notes.