The June Euro is trading flat against the U.S. Dollar as investors take the sidelines ahead of tomorrow’s Spanish bond sale. As debt worries mount, investors will be taking a hard look at the action in Spain. This auction is considered a major test of Span’s ability to gain control of its financial and budgetary problems. Since Spain is the fourth largest Euro Zone country, a fear is building that a collapse will have a contagion effect on other major countries in the area.
Traders are taking a more cautious approach to this bond auction despite the favorable bill auction earlier in the week. This indicates that the market is more worried about the country’s longer-term status. In addition, traders are concerned that the European Central Bank may no longer be committed to buying government bonds. This action by the central bank has been keeping longer-term rates in check.
Technically, the June Euro touched a major 50 percent level at 1.3070 before mounting a small intraday rally. In addition, it has been straddling a downtrending Gann angle at 1.3114.
Earlier in the week, the Euro was once again defended heavily at 1.3000. This triggered a huge short-covering rally that stopped short of the recent short-term top at 1.3218. A breakout above this level will turn the main trend up on the daily chart, but the single currency is likely to meet selling pressure once again near 1.3250.
The first sign of weakness will be a break below 1.3070. This will be followed by a push through 1.3000. Traders should watch for an acceleration through this level with 1.2850 the next likely downside target.
Traders should note that the Euro may get quite active during the Spanish bond auction. This means it may be subject to choppy, two-sided trading before making its move through either 1.3218 or 1.3000.
