Last week’s gains were largely driven on speculations that the European Central Bank was moving closer to responding with a solid plan to arrest the spread of the regional debt crisis and to support growth. EUR/USD had a bearish Friday but still managed to close above the 1.25 handle. Investors remained optimistic about Greece talks as well. Greek Prime Minister Antonis Samaras, who met with German Chancellor Angela Merkel on Friday, said his government was determined to meet all bailout targets and exit the sovereign-debt crisis but his country needs more time to meet its obligations. German Chancellor Merkel said that Germany would await the report by the troika (International Monetary Fund, European Central Bank and European Commission) about Greece’s reform efforts before making any judgments.

We saw that the EUR/USD pair’s upside was capped after purchasing managers’ indexes showed the region’s service sector shrank in August and German manufacturing contracted for a sixth month. Data released by the Markit Economics showed that eurozone services declined to 47.5 this month from 47.9 in July. German Federal Statistics Office said economic growth slowed to 0.3 percent in the second quarter, from 0.5 percent in the previous three months. The euro paused its advance at 1.2588 as the European Central Bank was said to wait until the German court ruling before unveiling details of a plan to buy the securities of the debt-plagued nations.

The forex market will have volatile times; Fed Chairman Ben Bernanke will be closely watched for clues on the prospects for further bond-buying (another round of quantitative easing) from the Fed. After the ECB meeting on September 6, there are Dutch elections and a German Constitutional Court ruling on the euro zone rescue fund on September 12 and European Union finance ministers’ meeting starting on September 14.

The latest data from the Commodity Futures Trading Commission showed that speculative traders on the Chicago Mercantile Exchange decreased their open short EUR position by 9% from a week earlier to reach a net of $19.3 billion.

Speculative traders decreased their open short CHF position by 16% from a week earlier to reach a net of $2 billion and also decreased their open long JPY position by 64% to reach a net of $2.4 billion, according to the CFTC’s weekly report on the commitments of traders.

CoT Chart EUR

CoT Chart GBP

CoT Chart CHF

CoT Chart JPY