As we enter a new trading year the eurodollar is delicately poised below the 1.3300 price point, following a sustained period of sideways price action throughout much of December 2012, and indeed it is hard to imagine that only 12 months ago the euro had all but been written off.
So where next for the eurodollar in 2013? From a technical perspective the key here is the price action and indeed in December we saw 2 isolated pivot highs posted. The first on the 19th December followed by a second on 27th December, both of which tested the 1.33 level. These two failures at this price level resulted in the pair pushing lower and the pair confined to a tight range between 1.32 and 1.33.
Today’s price action reflects the market’s general euphoria, following the postponement of the fiscal cliff, and once again we have seen the eurodollar test the 1.33 level with a subsequent pullback to trade at time of writing of 1.3239. The price action on the daily eurodollar chart is now developing a significant platform of resistance at 1.33 and for any continuation of the bullish trend of Q4 2012 this now needs to be breached and if breached will open the way for a re-test of the 1.3494 level, last seen in February 2012. Any breach of this price level could even see the eurodollar move back towards 1.38 in the longer term.
Indeed the longer term 3 day chart continues to signal further bullish momentum both in terms of trend and volume (market activity), and it is only on the daily chart that we have seen a temporary pause, particularly in volume.
From a fundamental perspective the bond yields which once led headlines are now of less significance given that Germany has agreed to the ECB acting as the lender of last resort for both Spain and Italy, so expect this effect to diminish in 2013. Debt auctions will no longer be the focus for traders who are more likely to look at jobs related data and sentiment surveys.