EUR/USD: Outlook Negative

After having spent almost 2 month in the $1.3175/2800 range, EUR/USD made a break-out to the downside last week.

On fundamentals, the 2 most important problems affecting the euro for now – Spanish reluctance to ask for financial help and Greece’s financing – remain unresolved. The market got tired of waiting and the bears finally succeeded in swinging the market in their favor.

There are concerns about the US fiscal cliff. The common expectations are that US will be able to avoid the disaster, though probably at the last moment and not for long. Yet, this seems enough for now to make USD-lovers more or less comfortable – USD longs increased in the week to November 6. Of course, we’ll see trouble coming out of the US, but later.

Greek issues are certainly more urgent, this week at least. That nation’s creditors haven’t reached any solutions yet. German Finance Minister Wolfgang Schaeuble said on Sunday that the Troika of international lenders was unlikely to deliver its full report in time for Monday's meeting.

On Friday, a Greek finance ministry official said that the country will roll over 5 billion euro of debt, maturing on November 16 because of a likely delay in getting the next tranche of its international bailout. The euro zone’s Q3 GDP release on Thursday may increase the gloom.
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If EUR/USD slides below the 2-month low of $1.2689 hit on Friday, it will become vulnerable for a decline to $1.2635 (100-day MA) and $1.2610 (50% retracement of the advance from July minimum to September maximum). On H4 we see bearish convergence on MACD – there’s scope for some correction, though not much.

Resistance lies at $1.2740 (38.2% retracement), $1.2800/18 (200-day MA). Analysts at TD Securities and BBH give bearish targets of $1.24 and $1.2610/2475 respectively.