It is clear that traders have been left feeling disappointed by the weekend’s EU Finance Ministers meeting, with EUR/USD coming under strong selling pressure in early Asian trade.
We have been advocating a ‘sell in strength’ policy on the pair for the last week or so, and now price action suggests EUR/USD could retest the low from the start of last week at 1.3497. The short-term uptrend from September 12 has been breached and could indicate lower prices from here. The fact that Troika (the EU, ECB and IMF) is not going to make a decision on whether Greece gets its next bailout tranche until early October is a blow, as is Angela Merkel losing a sixth regional election, showing just how weak German public sentiment is towards her handling of the crisis.
There had also been some goodwill towards the EU meeting, with suggestions that US Treasury Secretary Tim Geithner would look to convince Europe to leverage off the EFSF (along the same lines as the US TALF programme). However, this has been thoroughly unwound in Asia on the reality that he was quickly shot down, with euro leaders unconvinced that they should take advise from an official whose country’s fiscal position is in some ways much worse than theirs. Given traders today seem hell-bent on selling risk, a test of 1.3509 (the September 12 low) cannot be ruled out in the short-term.