EUR/USD closed higher than opening on Friday after the International Monetary Fund said eurozone’s debt-plagued countries should be given extra time to narrow their budget deficits.

In addition, data showing output at eurozone factories grew much more than expected in August added to euro’s gains. However, gains were capped below the strong 1.3000 resistance by uncertainty over whether and when Spain would request help with its finances.

A bailout request could be very positive for the eurozone’s common currency as it would remove another layer of uncertainty in the forex market and lower borrowing costs.

Yesterday the Spanish economy minister said that a European bond-purchase plan was completely ready for use and that there was no political resistance to a bailout request from the European Central Bank.

Although the latest developments suggest that Spain is going to consider its options, there remains a risk that Spain will not request a bailout over the next few months.

This would definitely weigh on the EUR/USD pair. Managing director at the Bank of Tokyo-Mitsubishi, Noriaki Mura said “There is some buying of the euro as investors speculated the S&P downgrade may hasten Spain’s request for a bailout. This week, forex market investors will be watching if any progress is made at the EU summit”.

Meanwhile, the market participants will be watching IMF meeting. Japan’s Economy Minister Seiji Maehara said he will discuss the trouble a strong yen is inflicting on the country’s exports when he meets European Central Bank President Mario Draghi and U.S. Federal Reserve Chairman Ben Bernanke. He told that Japan may intervene to rein in the yen’s strength.

The latest data released by the Commodity Futures Trading Commission release showed that speculative traders increased their open short EUR position by 44% from a week earlier to reach a net of $11.7 billion. CTFC’s Commitment of Traders also showed that currency speculators decreased their open long AUD position by 36% from a week earlier to reach a net of $4.1 billion. They also decreased their open long JPY position by 56% to reach a net of $2 billion.

CoT Chart EUR
CoT Chart GBP
CoT Chart CHF
CoT Chart JPY