Euro dollar continues to slide lower, as tension mounts towards the stress tests for the European banking system. These could prove to be a lose lose situation for the euro. The pair is also pushed lower by the lower chances of QE3. We’ll get to see how real this is with fresh inflation figures from the US.
Here’s a quick update on technicals, fundamentals and what’s going on in the markets.
EUR/USD Technicals
- Asian session: A quiet session sees a failed attempt to recover.
- Current range 1.4120 to 1.4160.
- Further levels in both directions: Below 1.4120, 1.4070, 1.3950, 1.3838, 1.3750, 1.37, 1.3570, 1.3440.
- Above: 1.4160, 1.4220, 1.4282, 1.4375, 1.4450.
- The historic line of 1.4282 proved to be at its strength once again. as it marked the beginning of the slide.
- 1.4030 is the most important support line on the downside.
Euro/Dollar sliding lower – click on the graph to enlarge.
EUR/USD Fundamentals
- 9:00 European Trade Balance. Exp. -2.4 billion. Actual -0.6 billion.
- 12:30 US CPI. Exp. -0.1%. Core CPI exp. +0.2%.
- 12:30 US Empire State Manufacturing Index. Exp. +4.5 points.
- 13:15 US Industrial Production. Exp. +0.4%.
- 13:15 US Capacity Utilization Rate. Exp. 77%.
- 13:55 US Consumer Sentiment. Exp. 72.5 points.
- 16:00 European Stress Test Results. See preview here.
* All times are GMT.
For more events later in the week, see the Euro to dollar forecast
EUR/USD Sentiment
- Stressed by the Stress Tests: After last year’s tests proved to be a joke that didn’t foresee the Irish collapse, this years tests are more serious, although they don’t test a scenario of a sovereign default. A good report will be dismissed as not serious. A bad report will weigh on the euro. More analysis in the preview.
- Moody’s and S&P warn the US: As political negotiations are still far from being finalized, two credit rating warned the US of a downgrade . This added pressures on the dollar. Maybe Bernanke can help the US avoid a default.
- QE3 Fades Away, Again: In his second appearance in Washington, Bernanke already changed his tone, clarifying that QE3 is not on the agenda right now. This helped the dollar recover.
- Creative solution for Greece: While the focus is on the US, intense discussions are taking place in Europe regarding a solution for Greece. One option is allowing a Greek default, and using the bailout fund to allow Greece to perform mass buy backs of bonds. This is the the transfer union that many northern European countries fear.
- Imminent default for Greece: This is less of a speculation any more. The Dutch finance minister leads the way once again with statements of an upcoming “selective default”. Apart from Jan Kees de Jager, also George Soros says it may be inevitable. This was partially priced in. It is “sell by the rumor, continue selling by more rumors” at the moment.
- Italian and Spanish bond are on the rise again: Spanish 10 year bond yields are 2% higher, now at 5.95%. Very dangerous levels. Italian yields are over 3% higher at 5.7%, an area considered dangerous for Spanish yields just last week. Are Spain and Italy up next for a credit downgrade?
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