January 18th 2011
Today’s rally in the Euro is on the back of slightly more favourable conditions emanating from Portugal, in that they may not need financial support from the rest of Europe…for the moment.
It is likely the professional speculators have been running short positions in the EUR/USD contract and may have needed to cover their positions as the price has recovered, providing extra stimulus to the upside. Technically the EUR/USD price has reached a resistance level on the charts at 1.3450, so the price may take a breather here. Long term the professional traders are likely to continue to look for further weakness; with 1.22 a target if Portugal and more importantly Spain seek help.
The fact that countries outside Europe are looking to support the weaker Eurozone countries is definitely a factor to consider. Although external support could be considered a positive, it does not give off the right signals that the Eurozone cannot ultimately support itself. In the short term, as long as Portugal refrains from seeking help, the EUR/USD price may retest the key resistance level at 1.3450; a break above which may catapult the price short term towards 1.3650.