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Forex: EUR/USD knocks on fresh 4-month lows at 1.2750; it's the worst behind?

FXstreet.com (Barcelona) - EUR/USD could not manage to hold above previous 2013 lows around the 1.2825 level, and broke below it printing fresh 4-month lows at 1.2751 in early New York Wednesday's session. Widening sovereign spreads in the EZ periphery and political instability in Italy were among the reasons behind, despite the fact Bloomberg reported on a document signaling Cyprus deal was not in any case a “template” for further banking crisis in the EZ.

With all that, including rumors coming from Italy that a 20% tax on deposits unsecured could be in the makings, and more worrisome news coming from Moody's during Asian session affirming Portugal rating and negative outlook, EUR/USD has posted Asia-Pacific session highs above 1.2800, while Chinese equity markets have been plunging on fears of possible tightening bias from PBoC to come soon.

“There is nothing in the technical outlook that suggests the Euro is not going to trade down toward our target of 1.2650,” said Gregory McKenna, GlobalFX CEO and former Head of Currency Strategy at the NAB and Westpac. But something very similar happened back in early February, when EUR/USD was touching fresh 1.5-year highs at 1.3711 and nothing was gonna stop it from climbing to 1.3750. Even all mighty Goldman Sachs were calling for 1.40 targets. Counter trading? Who knows. Draghi spoke again, and here we are, almost 1k pips below then.

In the shorter term, “The hourly chart shows 20 SMA heading strongly down above current price, acting as dynamic resistance around 1.2800, while indicators turned flat in oversold levels,” said Valeria Bednarik, Chief Analyst at Fxstreet.com, adding: “In the 4 hours chart technical readings maintain a strong bearish momentum, with short term selling interest now aligned first around 1.2800, but ready to jump in on spikes up to 1.2880 level,” she suggests.

EUR/USD is last at 1.2788, a -3.08% lower year to date, -2.06% of it done in last month, and retailer sentiment increasingly bearish. Meanwhile, one of the big German banks was reported with a decent buying interest in EUR/USD around the 1.2800 level, and some middle-east names were also seen placing bids for Euro, FXWW founder Sean Lee noted, while foreign investors put more than €30B to work in Spain for the month of January, versus the €6B were taking out same month last year, Europa Press reported.

“Looking ahead,” says BK Asset Management managing director Kathy Lien, “the next test will be Germany retail sales and unemployment numbers.  Economists are looking for a sizeable pullback in German retail sales after a nice rise the prior month but labor market conditions are expected to improve as the PMI reports showing the strongest pace of job growth since January 2012,” she notes, adding: “If everyone is right and Thursday's economic reports show improvement in the German economy, the EUR/USD could rebound and aim for a retest of 1.29,” she concludes.

Session Recap: Chinese banks drag equities lower on tightening policy fears; Kuroda stands by

Asian markets today were dominated on massive Chinese equity markets sell-off, Shanghai down -2.53%, and Hong-Kong -1.27%, while Tokyo -1.15%, and Australian ASX -0.57%, which has dragged AUD/USD lower with it. Possible tightening policy near from PBoC has sparkled fears in credit markets.
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Forex: EUR/USD regains 1.2800

The single currency is inching higher on Thursday, extending the overnight momentum and regaining the key resistance of 1.2800, after dipping to a 4-month low around 1.2750...
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