The fundamental health of the euro is a tenuous subjective. Over the past week, it would seem that the threat of an imminent default from Greece and the potentially crippling side-effects such an event would have on the rest of the region have passed. However, this brief period of calm should not be hastely labeled a shift in confidence. A reprieve from strong winds in risk aversion has been noted across securities and asset classes. This has in turn tempered concern surrounding the health and stability of the Euro Zone. In the meantime, policy officials have been scrambling to put in a fundamental support to the clearing in sentiment. Will they be successful? This is a question that could ultimately define the direction of the euro. Should underlying risk appetite falter before a meaningful solution (a clear bailout option for Greece or a European Monetary Fund) be put into place; the threat to the regional economy and currency can prove prolific.
Considering the influence that large fundamental themes have for this currency and the unpredictable nature of their development, it is a dangerous game to trade euro crosses through the medium and long-term. A quick swing that takes a few days is perhaps the best option for this tense unit; but there are no immediate setups. However, we can establish scenarios and opportunities for either high volatility and low volatility situations. A high volatility scenario would most likely lead to a breakout. No where is a breakout more promising than with EURUSD, which has been set within a 1.3700 – 3450 range over the past two weeks. A revesal of the past three months’ bear trend has the greatest immediate potential; but I would be open to a confirmed break on either side of the market. A stop will be placed above or below the previous daily bar’s high or low (depending on which direction the break occurs). Some other pairs see a better opportunity for reversal. EURNZD is a risky bet for a reversal; but a clear floor at 1.93 offers a meaningful backdrop. EURGBP is more fundamentally enticing as the UK’s troubles are obvious; but the Euro Zone’s issues are clearly being undervalued. Technically, the unsubstantiated trend from the 12/30/08 to 10/14/09 highs set a technical marker along with the 61.8 percent Fib of the October to January bear wave at 0.91. Short entry at 0.9115 offers the best probability for an active position over the immediate future. A stop of 0.9165 will cover the November swing high and a first target of 0.8925 will more than compensate for the risk.
