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Euro back to square one

FXstreet.com (Barcelona) - The shared currency remains entrenched at the lower end of yesterday’s spectrum thus far, still shaken by the grim comments by Buba’s J.Weidmann on Wednesday. Renewed concerns about the euro zone growth prospects are weighting on the EUR/USD as well, undermining any upside attempt in the very near term. So far, the market is closer to breaching the 1.3000 level than piercing the 1.3400 upside barrier – and idea though unthinkable two days ago.

… Resuming the bearish trend

The longer the demand for euros keeps the cross around the current levels, the more confirmed is the fact that recent highs in the vicinity of 1.3200 represents a top in the near and medium-terms.

The G20 gathering that kicks in today would be a priori nothing that euro traders should pay close attention to, despite that the recent depreciation of the Japanese yen alongside the new QQE programme ignited by H.Kuroda and Co. would be in centre stage.

The developments in Italy – or the tip of the iceberg – remain so far ignored by the markets albeit they should grow in relevance towards the weekend, when a new President should be appointed. That would be the first step in order to gather consensus for a coalition government, however its occurrence is far from guaranteed. Should the political deadlock linger, fresh elections would be called increasing even more the uncertainties surrounding the third economy of the bloc, a front better not be by-passed by the markets.

In addition, further downside pressure emerges from next week’s manufacturing and services PMI results in the euro area, as improvements in both sectors would remain neglected for the time being (2013?), according to the market consensus and markets’ reality.

When comes to technicals, the cross is navigating below the uptrend channel support set from April lows.
Should the bull run reignites, the first hurdle would be the area of 1.3085/1.3120, where converge the channel support line and the 38.2% Fibonacci retracement of the February-April decline. Further impulse would then target 1.3201 (April 16th high) ahead of 1.3225/30 (50% Fibonacci retracement).

On the flip side, the psychological mark at 1.3000 should contain the initial selling wave ahead of the 200-day moving average at 1.2920/25.

European markets up ahead of G20 and Italy Presidential election

The German DAX 30 trades at 7548.25 (+0.37%), while the French CAC 40 quotes at 3563.75 (+0.90%) and the British FTSE 100 at 6222.25 (+0.54%) as the European morning ends and the G20 central bankers and finance ministers gather for a meeting on central bank stimulus, especially from the BoJ, and fiscal targets. The Italian FTSE MIB is up by +1.00%, at 15225, as the Italian government starts today the election of a new President. “It’s still unclear whether there has been enough agreement between the main parties to get sufficient votes for a single candidate to elect”, added the TD Securities analyst Annette Beacher.
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Forex Flash: Market likely to react with disappointment to BCB rate hike by 25bp to 7.50% - TD Securities

The Brazilian Central Bank decided to lift the Selic rate by 25bp to 7.50% overnight, as expected by consensus, but the market was pricing in more than +40bp ahead of the announcement “and is likely to react with disappointment today”, said TD Securities analyst Marcin Budkiewicz, adding that the minimal size of the hike supports the view that the tightening cycle is going to be much less aggressive than markets expect. “If the Copom delivers another 50bp of tightening in the next two meetings, DI futures due July-13 will have to fall by at least 60bp”, continued the analyst, certain of downside adjustment even accounting for uncertainty. “Extending this conclusion to the whole cycle (likely to be less aggressive than expected), the +180bp still priced in for year-end will also have to fall closer to our 75bp forecast”.
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