The EUR/USD was hammered by news that Hungary's previous government put window dressing on their budgets. Some have whispered that Hungary could be in situation comparable to Greece and will need to undergo further fiscal consolidation in order to right the ship. Negative news from Hungary ignited uncertainty concerning the exposure of EU banks to Eastern European markets. The news was enough to tip the scale, sending the EUR/USD tumbling below 1.20 towards February 2006 lows. As we have stated repeatedly, it's wise to expect the unexpected from the EU, and Friday's market activity confirms our suspicions. Meanwhile, the G 20 will try and settle markets, though it's unlikely any agreement of substance will come from this weekend's meeting. The EUR/USD's step below 1.20 could prove to be an important near-term development, though the currency pair will likely try to develop a new base soon. While we'll have to wait and see how the situation in Hungary plays out, investors should also keep in mind that news can pop up from Spain and Greece as well, not to mention other fiscally troubled EU nations. Hence, even though Hungary seems to be the next shoe to drop, we're coming to realize Europe has a big closet. Next week's data wire is fairly empty until Thursday's central bank meetings. Therefore, psychological forces should be in the driver's seat over the next few trading sessions. That being said, keep your eyes on the news wires because even though we're light on data that doesn't mean psychological won't make the market move. Technically speaking, the EUR/USD faces multiple layers of topside barriers, including 1.20 and 6/4 highs. As for the downside, the EUR/USD has limited near-term support besides February 2006 lows, though as we said it's possible the currency pair will try to form a new base around 1.20.
Present Price: 1.1965 Resistances: 1.1975, 1.1991, 1.2017, 1.2034, 1.2052, 1.2064, 1.2083 Supports: 1.1952, 1.1941, 1.1919, 1.1909, 1.1890, 1.1867
Psychological: February 2006 lows, 1.20, 1.19
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