EUR/USD April 16 Spanish Concerns Spook the Euro

Euro dollar continued its slide over the weekend, hitting a one-month low.  The markets have plenty of news to digest on this Monday morning. The US dollar shrugged off US inflation figures, which were higher than forecast, as well as weaker consumer sentiment. In China, the relatively weak Chinese GDP is weighing on the continental currency, as global demand is essential for European growth. In another development, the Chinese central bank widened the range in which the yuan trades against the dollar, for the first time since 2007. In Europe,  news fresh out of  Spain continues to make the markets nervous.  Spanish banks borrowed a record amount from the European Central Bank in March, and Spanish 10-year yields rose above 6%, their highest level since December 2011. Bond yields in Italy and Portugal are also up, prompting fears that all three countries may  need more aid from the ECB to keep their economies afloat. The Euro-zone Trade Balance came in this morning at 3.7B, well  below forecast, as the indicator posted  a four-month low.

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

EUR/USD Technicals

• Asian session:  EUR/USD continued falling,  touching  a low of 1.3909, and consolidating at 1.3022. The pair  remains steady in the  European session, trading at 1.3014.  
• Current range: 1.2995 to 1.3080.        

• Further levels in both directions: Below: 1.2945, 1.2873, 1.2760, 1.2660 and 1.2623.
• Above: 1.3110, 1.3165, 1.3212, 1.33, 1.3360, 1.3437, 1.3486 and 1.3550.
• 1.3212  has strengthened  as the upper border for the pair once again.
• 1.30 could break  if the pair continues to weaken.

Euro/Dollar sliding from high resistance to support – click on the graph to enlarge.

EUR/USD Fundamentals

• 8:00 Italian Trade Balance. Exp. -1.11B. Actual -1.85B.
• 9:00 Euro-zone Trade Balance. Exp. 4.7B. Actual 3.7B.
• 12:30 US Core Retail Sales. Exp. +0.4%
• 12:30 US Retail Sales. Exp. +0.6%.
• 12:30 US Manufacturing Index. Exp. 18.1.
• 13:00 US TIC Long-Term Purchases Exp. 40.7B.
• 14:00 US Business Inventories. Exp. +0.7%.
• 14:00 US NAHB Housing Market Index. Exp. 28.
• 16:30 FOMC Member Pianalto Speaks.

For more events later in the week, see the Euro to dollar forecast EUR/USD Sentiment

• Chinese Growth Slows: The economic giant reported a growth rate of only 8.1% in Q1. This disappointed markets that thought growth would stand at 8.4% or even higher. The upside is that the slowdown in growth is slow and not a crash.  In any case, the official Chinese numbers are always questioned. The markets are hoping that the decision by the Chinese central bank to widen the trading range of the yuan, the Chinese currency,  will help jumpstart  growth in the Asian giant. Europe needs strong Chinese demand for its growth. Currently Europe is in recession.
• ECB to help Spain?: Europe’s fourth largest economy is still struggling to find a way to cut its deficit while enabling some growth. In the meantime, Spain and Italy are exchanging not-so-nice comments. The ECB stepped up its rhetoric against the high yields and hinted that it might intervene using its SMP program. This hasn’t been used so far. Spanish banks borrowed over 300 billion euros from the ECB in March, much higher than in February. The danger of a credit crunch is still here.
• More Worrying US Employment Numbers: Weekly jobless claims rose to 380K and triggered worries. This is the first release after the disappointing Non-Farm Payrolls released on Friday, that showed only a small gain of 120K. Is the economy cooling down again, or is it only temporary? Here are 5 reasons why this may be temporary. Last week’s release of US consumer sentiment was lower than the market forecast, as consumers are still somewhat skeptical of the economic recovery. Consumer confidence, and in turn, consumer spending, are  critical for improved growth in the US economy.
• QE3 battle leans towards hawks: Many FOMC members have spoken up about the situation of the economy and future monetary policy. Some support more accommodation while others oppose it. Even within the supporters, it seems that the bar still remains high for more action. Nevertheless, Bernanke can still provide dovish hints and hurt the dollar. Note that QE2 certainly helped the Federal government’s debt raising in 2011.
• Asia still strong: Recent data confirms stronger growth in the Asian markets. Unemployment has dropped in Australia and South Korea, and exports jumped 15% in Malaysia and the Philippines. The mood in the Far East is bright, in sharp contrast to the pessimism engulfing Europe.