EURUSD Analysis – Hits 2-Year Low – Spanish Bond Yields Above 7 Percent

Market Sentiment Overview

(Nick Simpson Forex-FX-4X).  Negative sentiment dominated during the end-of-week trading as the EURUSD currency rate dropped to a low of $1.2143 on Friday.  This came as Spain’s financially challenged Valencia region requested government aid.   There are now elevated concerns that the Spanish government is going to need a larger bailout than originally anticipated, this gave a day which printed the lowest level the European single currency had seen versus the U.S dollar since mid-2010.  Reports had already come to light on Thursday that the Budget Minister from Spain, Cristobal Montoro had advised that the Spanish government is struggling to pay for its public services.  

• Other negative news from the region came as the ECB (European Central Bank) advised it was no longer going to accept Greek bonds as collateral.  Strong U.S. corporate earnings had seen global markets trading higher but the negative sentiment from Europe dominated the end of week trading. 
• German 10-year bond yields dropped to 1.168 percent (a decline of 5 basis points).  The U.S. 10-year Treasury note yield dropped to 1.4567%.  In contrast the Spanish 10-year bond yields moved up by over a quarter of a percent to over 7.20%.
• Large speculators from the CME (Chicago Mercantile Exchange) had bearish bets on the EUR FX relatively unchanged at around 167k net short contracts which is only marginally more than last weeks 165k figure.

EURUSD Technical Analysis

• The euro has traded lower against most of its currency major counterparts on Friday with record lows seen against the commodity currencies (Australian, Canadian and New Zealand dollars).  EURUSD was down over 130 pips on the daily basis.
• From a price action perspective the daily candle of Thursday gave an early hint that upside momentum was disapating with a doji forming at the previous 1.2300 swing low which became resistance..
• The 1.2300 area has proven to be a price pivot and could once again potentially see resistance if hit again, on any upside move.
• Any prolonged move lower for EURUSD brings the following technical areas into view, the Fibonacci expansion derived from 1.3485 > 1.2283 > 1.2747 has a 61.8% extension closely aligned with the major EURUSD round number 1.2000.
• 1.1875 is the June 2012 low and provided significant support when last hit, a break under this level would have the EURUSD trading at prices not seen since 2006.  Looking at things from a longer term perspective, a potential reaction around this area and subsequent move high would not be unusual from a technical perspective if reached as this is a major swing low area on the weekly charts.

EURUSD W1 Chart