Eurozone Debt Concerns Call Latest EUR/USD Rally into Question; Looking to Buy Put Options at 1.3080
Binary options on the EUR/USD are seen in a 1.3020-1.3200 price range as traders assess mixed fundamental factors. The Eurozone debt crisis is being balanced with market speculation of further quantitative easing stimulus from the US Federal Reserve and so far the balance of the evidence suggests further downside in the world’s most liquid currency pair.
The main problem in Europe surfacing last week came with the Spanish bond auction, which failed to inspire buyers and sent bond yields higher. The 2012 budget in Spain shows a rising public deficit and an increasing debt to GDP ratio, and this helped push yields in the 10 year Treasury note into the 6 percent region. These higher funding costs will likely weigh on the Spanish economy for the remainder of this year and limit any major rallies in the EUR/USD.
The main question will be whether or not the government is able to successfully implement austerity measures, and this is the only possibility for creating an alternate trading scenario. Looking shorter term, Binary Option traders in the EUR/USD should pay attention to the daily European auction results as a means for determining where the next trend direction will be seen.
In the US, most of the attention is focused on forecasts relating to quantitative easing stimulus, which, based on comments from Fed members last week, is looking less and less likely. This is another Dollar positive (and a EUR/USD negative) analyst expectations going forward are going to remain heavily data dependent, with the employment taking the central focus. Inflation figures and Retail Sales numbers will take a secondary level of importance along with commentary from Federal Reserve Board members.
All of these figures will be released in the second half of this month, so it is highly likely that we are looking at an inflection point in the EUR/USD. Further deterioration in Spanish economic data and a reduced likelihood of economic stimulus in the US should bring a reversal in the latest rally in the EUR/USD and give traders an excellent opportunity to start betting on a significant bear move in the pair.
From a technical perspective, initial resistance comes in at 1.3150, with a break here targeting the 1.32 figure. To the downside, the support levels are clearly seen at the 1.30 psychological figure, which is now a double bottom and the 61.8% Fibonacci retracement of the rally from 1.2620. A Fibonacci break here targets a full retracement, so downside risk far outweighs upside potential in the EUR/USD.
My Trading Recommendation in 50 words:
I will be looking to enter into a one week 1.3080 put option, anticipating a drop below the 1.30 region. The loss of 1.30 will likely trip major stop losses below the figure and send prices to a test of 1.2880 some time next week.