The euro climbed for much of the day and even surpassed our $1.2580 risk-limit. Beforehand, traders were not worried to discover reasons for the euro's rise. Following the Philly Fed report, however, the dollar dumped across the board. Whatever reason led to the euro's ascension beyond Philly Fed, Russia rumors or Freddie Mac or something else, the move satisfied the range-bound traders. The dip-buyers finally saw the price level they were searching for. The new bias of the market has shifted back to neutral. In addition, the volatility has strayed to a new low for the trading year.

Our bearish orientation has dissolved, and shifted to neutral. Not much action is expected from the range-bound traders or anyone else. Thus a progression through $1.2700 would signify another source of demand in operation. In turn, this would open the euro to the target of $1.2965, the upper border of the daily range. Support is slated at $1.2580 currently.

Support & Resistance Table 

The recent constricted range of the euro-dollar was spoiled as the pair fell to $1.25 after the release of the U.S. housing data. From the get go, traders were expecting volatility from the housing numbers, especially a better-than-expected number. But the euro found excellent demand from the bulls and range-bound traders, sending the single currency higher off its low of $1.25. The search for euro bullish arguments continued, however. U.S. interest rate expectations continue to be muddled after 6 weeks of irresolution. Traders changed their expectations from a Fed cut, to a Fed pause, and finally to a hike. In addition, there is an enduring belief that the ECB seeks two more rate hikes in the future, indifferent to what data may come out. But these perceptions do not justly resonate with the central banks themselves. Regardless, the range-bound traders continue to use their interest rate beliefs to dictate to what degree they should be long the euro.

Across this backdrop, the bearish orientation remains in place with a 1.2400 target, completing the daily price channel. Below that, 1.2230 is a nominal target. To the upside, the risk-limit continues to be 1.2580.

Support & Resistance Table

The recent publication of the German ZEW survey during the euro session offered traders a chance to sell the euro; however, the release's credibility is questionable (the expectations element is a more suitable contrarian indicator for the German DAX). In the US session, a bigger-than-expected fall in the U.S. industrial production fueled market reaction, but curiously enough the market reacted very little to the capital inflows data, which hit an all time high. Speculation regarding Russian diversification (amounting to $7-8 billion) has been floating on trader's minds the past couple days and its significance for the euro. But the $116 billion inflow appearing in the TIC data was virtually disregarded. This fact alludes to strong confidence in the U.S. dollar or U.S. assets.

The euro's weak attempts to penetrate resistance have kept us unwavering in our bearish orientation. Our target remains the 1.2400 level and below that, 1.2230. On the upside, the 1.2580 level remains our risk-limit for a short. 

Support & Resistance Table

The EURUSD's rallied was capped at 1.2540 yesterday before softening up again. Traders initially sought guidance from the slate of Fed speakers, however; Bernanke's address and the Fed's Poole and Yellen failed to be a catalyst for the euro. Following the Fed line-up, the Empire State survey revealed an increased headline number, but the focus of that survey fell to the drop in raw materials prices. The Euro's close proximity to the July lows, as well as the 200 daily moving average is a favored buying approach for traders. In addition, some traders sought a more clever reason for the euro's latest rally - the account that central banks of Golf states' will be meeting in a month to consider the addition of a unified currency in 2010. There is a fear that a consolidation could end the dollar's peg against each single currency in the region.

The upside move on the euro managed only a meager 1.2540, therefore our target remains 1.2400. Failure of this level would expose the euro to our second target of 1.2230. Risk-limit to the upside is again slated at 1.2580.

Support & Resistance