EUR USD (1.2495) The euro slumped to its day-low yesterday after unconfirmed reports suggested that German Chancellor Merkel appears to have estimated her own longevity as higher than the probability of eurozone countries sharing debt liability. We can well imagine that these reports will probably be denied or at least put in a proper context. Nonetheless, just days ahead of a meeting of EU heads of state, the market treated the reports as a confirmation that no solutions to the crisis would emerge. Although popular beliefs were reinforced, there was probably little need for any actual trading, as market participants had already sold out their euros in the weeks before. So implied volatility remained low, and the price dip only took the single-currency some 15-pips lower than where it had traded earlier in the day. In fact it did no more than flirt with the lower border of its 1.2435 – 1.2740 congestion zone before rebounding to end the day almost unchanged. If anything, the price development simply enhanced the saliency of this lower threshold, thereby creating the ideal conditions for a downside false break. Such an exit, should it occur, must not extend beyond 1.2285 to maintain the prospect of a swift reversal. However, the best support is at 1.2360, so the downside break could be rejected already there. At the upper border of the congestion, a false break is also possible, but we attach a much lower probability to it. That probability would be close to zero if one is seen at the lower border first.
Click here to read the full report: Daily Forex 06.27.12
Deutsche Bank