The Euro has seen volatile trade over the last week. The market had recovered from the 1.2600 handle lows made in late August to push up to the 1.2900 handle after last week’s US Employment Situation report. However this week the market has sold off back to the 1.2700 handle.

Thoughts from the trading floor

The technical picture continues to favour short and medium term bears. The market has formed a key short-term pivot around the 1.2900 handle and the bears must use the key failure here to build on downside momentum. If the market breaks below the 1.2600 handle, a move down to the 1.2400 handle should be swift. A break below here would then target the 1.1876 YTD lows. A confirmation of the resumption of the medium term bear trend will take place on the break of this area. If short-term bulls are to regain traction in the market, a firm close above the 1.2900 handle will be required soon. The market has spent the last 3 to 4 weeks attempting to recover the losses seen in the aftermath of the FOMC meeting last month and a move above the 1.2900 handle will be required soon to prevent longs from caving in.

Notably, we have started to see the Euro currency weaken broadly against most pairs over the recent 2 weeks. The Euro against the Swiss Franc made new all-time lows this week and has been on a sharp trend lower for the last 6 weeks. This has coincided with a general European peripheral debt widening theme which has stated to accelerate recently. There is clear signs in the market of disturbances in the Eurozone peripheral debt markets which has sparked talk of the ECB resuming the buying of peripheral debt over the last 2 days. The ECB had refrained from those markets over the summer when those markets had gone quiet. These actions have supported the Euro around the 1.2600-1.2700 area.

Bull View

The bulls will be concerned that European peripheral bond sentiment has turned lower over the last 2 weeks. Bulls will need to reassert the recent short-term up-trend by taking back the 1.2950 handle. A move back above here would then target the 200-day MA around 1.3300

Bear View

The bears will look to press their advantage. A break and close below the 1.2600 handle should set the wheels in motion for a move down to the 1.2400 handle.

Futex View

We continue to favour the short and medium term bears. We will look for the market to take out 1.2600 over the coming days in order to confirm that a short-term leg lower is resuming. Short-term short positions will become vulnerable if the market retakes the 1.2900 handle.