Morning Futures Roundup

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Euro Remains Range Bound Ahead of Euro Zone Summit


   Fundamentals

The recent rally in the Eurocurrency may have run its course, at least in the near-term, as many traders square their positions ahead of the Eurozone summit this coming weekend. The Euro rallied during the past few trading sessions on investor optimism that European leaders would come to some sort of long-term resolution regarding how to deal with the looming debt crisis. However, comments from German officials seemed to pour cold water on the notion that a major announcement would be forthcoming from the EU summit.

Confidence in a meaningful plan has eroded economic expectations in Germany, as the ZEW index fell to its lowest readings in nearly 3 years. Adding fuel to the fire of uncertainty was the fear that Moody's Investors Services may lower the sovereign credit rating of France from its coveted AAA rating, due to the economic reinforcement needed to not only help support weaker members of the EU, but also to help shore-up the balance sheets of the country's major banks.

Though we may see some short-covering in the Euro ahead of the EU summit, it may take a definitive plan from the EU leaders to finally get serious about dealing with the debt crisis before the Euro can stage any meaningful rally. However, should the EU summit fail to bring about any significant announcement, or if it appears that European leaders will only "kick the can" further down the road, rather than deal with the tough issues, it is a distinct possibility that we may see the Euro resume its decline and test the recent lows just below 1.3200 basis the December futures.



   Technical Notes

Looking at the daily continuation chart for Eurocurrency futures, we notice the recent rally in the Euro has started to wane, as the market attempted to test near-term resistance near the 1.3940 level. The price move seen during the past several weeks has the appearance of a "V-shaped" bottom, and combined with the recent failed test of resistance may portend a new period of price consolidation. Long and short-term price trends remained mixed, with prices holding above the 20-day moving average, but they are still below the longer-term 200 day MA. Volume has been light during the past few sessions, which may be a sign that the recent rally was mostly short-covering and not new buyers coming into the market. Resistance for the December Euro is seen at the September 15th high of 1.3938, with major support found at 1.3142


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