Euro dollar is moving up and attempting to settle in a high range after Ben Bernanke pledged to leave rates unchanged until mid 2013. Also the ongoing ECB intervention in Spanish and Italian yields is helping. Will it break to higher ground, or is this temporary?
Here’s a quick update on technicals, fundamentals and what’s going on in the markets.
EUR/USD Technicals
- Asian session: A relatively quiet session after Bernanke saw the pair trade between 1.4325 and 1.4375. The move higher came in the European session.
- Current range 1.4375 to 1.4450
- Further levels in both directions: Below 1.4375, 1.4325, 1.42821.4220, 1.4160, 1.4070, 1.4030, 1.3950, 1.3838.
- Above: 1.4450, 1.4550, 1.4650, 1.47, 1.4775.
- 1.4450 is the key on the upside.
- The 1.4282 line returns to its role as important support below. It served as resistance until Bernanke.
Euro/Dollar in choppy range – click on the graph to enlarge.
EUR/USD Fundamentals
- 6:00 German Final CPI. Exp. +0.4. Actual +0.4%.
- 6:45 French Industrial Production. Exp. -0.1%. Actual. -1.6%.
- 14:00 US Wholesale Inventories. Exp. +0.9%.
- 18:00 US Federal Budget Balance. Exp. -140 billion.
* All times are GMT.
For more events later in the week, see the Euro to dollar forecast
EUR/USD Sentiment
- Bernanke uses verbal tools: As expected, the FOMC left rates unchanged and did not provide any hints about QE3. What it did do is pledge to leave interest rates low until mid 2013, despite 3 dissenters. The picture that the committee painted for the US economy was quite gloomy. After an initial hesitant reaction, this triggered a stock market rally that sent the euro higher, although still somewhat hesitant.
- Trichet continues guarding periphery bonds: The ECB finally provided the necessary intervention in the markets, following an emergency meeting on Sunday. This one is serious – Italian and Spanish bond yields remain stable at lower levels for a third day in a row: Spanish bond yields are under 5% and Italian yields are at 5.10%. Trichet said that the ECB is active in the markets. This stabilizes the euro and the fear of contagion. Before making this move, the ECB managed to get significant promises, especially from Berlusconi, while the changes to the EFSF are awaited. Is this a temporary pause in the debt crisis? Note that if the bond buying is indeed massive and unsterilized, this is actually a form of quantitative easing – euro printing, that could eventually flip against the euro. For more on this see: QE Landing in Europe – Euro headed south?
- S&P Downgrade of the US: This historic move by S&P caused stock market sell offs, and triggered expected moves but thanks to Bernanke, they have now stabilized and so have currencies. It’s important to note that treasury yields just continued lower – a clear vote of confidence. .
- Weakness also in Europe: The economic situation in the US is sluggish to say the least, and the jobs report which was OK drowned in a sea of red. The drop in French industrial output reminds us that also in the euro-zone, a significant slowdown is felt. Tomorrow we have more important US figures. Will the markets remain calm till then?
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