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Euro at the crossroads

The single currency is netting no variation in the current week so far, following four consecutives weekly declines since February’s high above 1.3700 before falling as low as 1.2966 on March 1st.
In the wake of the last EcoFin gathering, there were not many major issues to highlight – neither minor, as per usual with these meetings – although the late results from the Italian elections combined with the tepid economic conditions in France would hint at the chance of a slower pace – if not halting it – of the austerity measures. However, this idea would kick in in a longer-term horizon, as the austerity scenario for 2013 would be untouchable. In addition, final figures for the GDP in the fourth quarter for the euro area showed contractions in both the inter-quarter print at 0.6% and the annualized reading at 0.9%.

… First hurdle: Draghi’s press conference

So, in light of tomorrow’s ECB gathering, the EUR/USD would be surrounded by an intensified bearish sentiment, contrasting with the recent celebratory tone emanated from the US stock markets, printing multi-year highs and returning to levels pre-crisis. This downbeat tone would be exacerbated in case the Fed’s Beige Book outlines a better prospect for the US economy this evening, signalling that further support for the greenback would be in the pipeline.

At the moment, market participants would be mulling the idea of a rate cut by the ECB on Thursday, bolstered by recent LTRO repayment figures below estimates and grim euro zone economic fundamentals, which showed no sign of significant improvement as of late, at least they were insufficient to spark any hint of optimism.

However, what if the ECB stays on hold? Wouldn’t that be supportive of the EUR? In the very short term, that seems like the most probably outcome although the bounce would parallel the well-know market saying of the “dead-cat-bounce”. In the opposite hand, President Mario Draghi would insist on his dovish tone, increasing the selling interest and thus driving the single currency to lower ground, to test once more the psychological limestone of 1.3000

It appears that as long as the market navigates below the accelerated downtrend set from February highs above 1.3700 (around 1.3200 at the moment) it would remain offered, with the next support aligned at 1.3000, ahead of 2013 lows at 1.2966 (March 1st). The significant area of 1.2885/1.2925 would be the next stop south, home of the 200-day moving average, the 50% retracement of the up-move from July 2012 lows to February 2013 highs, the bottom of the down-channel set from 2013 highs and December 2012 lows, ahead of November lows and the 61.8% retracement around 1.2660/90

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