EUR/USD is currently nestled into what could be called a safety or neutral zone between $1.33 and $1.34. As can also be seen from the annotation on the daily chart, the inside box formation suggests that there is caution and hesitation about the next direction to take. From a purely technical perspective the break of the upward slanting trendline with a decisive drop below $1.3220 would almost certainly lead to a rush for the exits.

The following comments from RBS (featured at FT Alphaville) suggest that there is some complacency in the market where traders are "counting on" some form of rescue efforts by the ECB/EU.

We think there is a good chance that because everyone expects it (because of the desire to think pro-EMU thoughts by the consensus, from what we can see), and the noise levels on this are rising, that analysts are *not* getting prepared for the consequences when/if they realise Germany & the other core is not backing down.

Remember, liquidity is not solvency. The ECB can buy bonds, but unless the core taxpayers are generously willing to continuously pay for everyone else’s excessive public spending, this solvency is what we should be focused on as an end game.

As I noted yesterday it all comes down to how much the Germans love the euro currency and in this regard the followup comment below was attached to an article I wrote yesterday and which was published at Seeking Alpha.

More or less ever since Germany’s adoption of the single currency there has been a significant proportion of Germans that retained nostalgia for the D-mark. However polls conducted in the middle part of the 2000’s did not reveal the same antipathy toward the single currency as there is now.

Opinions obviously vary greatly not only as to the merits of the euro for all concerned - for Ireland and Greece I see no benefits to continuing to be within the EZ - but also as to whether Germany as well as other states will be willing to amend their constitutions or sign new treaties to give affect to a much more fiscally and legally integrated EMU. Personally I doubt it.



While writing this the S&P 500 futures are breaking to a new 2010 high above 1233 and underlines the positive prognostication provided recently for equities in general and high beta equities specifically.

IWM, the exchange traded proxy for the Russell 2000 is revealing some evidence of negative dissonance and the volume has been subdued, but there are not notable divergences in MFI and RSI readings and the target for the cash index of 800 to be achieved before the end of the year remains feasible.



As noted here last week EWP, the exchange traded fund for Spanish equities, was expected to mount a sizable pullback following the most recent version of panic surrounding the Irish bailout.

The pattern suggests that short entries at or near the base of the cloud are worthy of consideration.



CMF, which is an ETF which provides an opportunity to take a view on the municipal debt for California, is not very liquid but its behavior provides a vehicle for those with a bearish view on the fiscal condition of one of the US’s most troubled states.



Clive Corcoran is the publisher of TradeWithForm.com, which provides daily analysis and commentary on the US stock market.