EUR/USD Mar. 19 – Sliding from High Ground

Euro dollar started the week with a slide from the high ground it reached on Friday. Credit Default Swaps on Greek debt will be settled today, as talks about a “second Greece” loom over Portugal. US bond yields play a bigger role also in EUR/USD as does inflation on both sides of the Atlantic.

Here’s an update on technicals, fundamentals and what’s going on in the markets.

EUR/USD Technicals

• Asian session: A relaxed session for a Monday sees the pair remain under 1.3180 before sliding to 1.3150 at the wake of the European session.
• Current range:  1.3080 to 1.3150

• Further levels in both directions: Below:   1.3080, 1.30, 1.2945, 1.2873, 1.2760, 1.2660 and 1.2620.
• Above:   1.3150, 1.3212, 1.3280, 1.333, 1.3430, 1.3486, 1.3550 and 1.3615.
• 1.30 became a strong resistance line once again, and not only a round number.
• 1.3280 proved to be strong on the upside once again.

Euro/Dollar sliding back towards channel  - click on the graph to enlarge.

EUR/USD Fundamentals

• 9:00 Euro-zone Current Account. Exp. +3.3 billion. Actual 4.5 billion.
• 12:35 US FOMC member William Dudley speaks.
• 14:00 US NAHB Housing Market Index. Exp. 30 points.

For more events later in the week, see the Euro to dollar forecast

EUR/USD Sentiment – Details of hurdles

• Bernanke effect reversed: The FOMC left policy unchanged, as expected. This strengthened the US dollar significantly and triggered a dollar storm. The statement included an acknowledgement of higher oil prices and a more upbeat wording regarding employment, such as “the unemployment  rate has declined notably”. .The initial storm faded away with a strong reversal on Friday.
• IMF Releases Greek Money: The IMF joined the Eurogroup and gave the final approval to the second Greek bailout, worth 130 billion in total. This happened after Greece completed the PSI successfully and the new estimation is that Greece will now reach a debt-to-GDP ratio of 117% in 2020. A fresh troika reports see Greece missing 2013 targets already, with more austerity needed after the elections. The IMF is expected to release an initial sum to Greece today.
• Iran conflict heating up: In an unprecedented move, SWIFT announced it will cut off Iranian financial institutions from Saturday. This joins heightened rhetoric in Israel and elsewhere, and keeps oil high. See 5 signs that a war with Iran is getting closer.
• US bond yields in focus: Yields on short term and long term US yields are on the rise, and this pushes funds into dollars. When yields retreated a bit, the dollar followed. The effect is stronger in USD/JPY, but EUR/USD can’t ignore it. Since Bernanke’s move, stock markets and the dollar move together. This is a big change. Good US news helps the dollar, and bad news weakens it. This may sound very normal, but it hasn’t always been this way. See the video explanation here.
• Portugal in limelight: There are heavy doubts if Portugal could return to the markets anytime soon. A second bailout program is certainly on the cards. Even worse, this may not be enough, and the peripheral country might be needing a restructuring similar to Greece. Portuguese bond yields remain high and fighting debt through austerity proves hard.
• PSI – deadline open for foreign law bonds: Greece completed the PSI for Greek law bonds. The new ones are already trading at a quarter of a euro on the euro, reflecting a high chance of another default. There is a small portion of bonds under international law. The deadline for the PSI on these bonds is March 23rd. Note that there are specific bonds that include a loophole – one that could still cause a delay.
• Chinese housing slump: Fresh figures showed more drops in real estate prices in the economic giant. Shifting from an export based economy to domestic consumption isn’t easy, and this has an effect on the global economy.
• Draghi warns about inflation: The ECB left rates unchanged and made no policy changes. In the press conference, Draghi was very satisfied with the LTROs. He also warned about inflation, and said that the ECB has tools to fight it. Today’s CPI will provide more insight.