EUR/USD June 1 – Loses Critical Support as Spain

Euro USD  is dipping below another important support line as Spanish yields remain at dangerous levels and no help is at sight. IMF contingency plans for Spain don’t seem serious enough and fail to reassure markets. In Greece, different polls contradict each other and meanwhile state coffers run low. In the US, a wide array of data is released, and it will grab some attention  with the all important Non-Farm Payrolls, which are expected to show continued gradual job gains. How low will the pair close the week?

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

EUR/USD Technicals

• Asian session: The pair consolidated the fall below 1.24 and temporarily dipped under 1.2330.
• Current range: 1.2330 to 1.24.

• Further levels in both directions: Below: 1.2330, 1.22, 1.2144, 1.20, 1.1876 and 1.17.
• Above: 1.24, 1.25, 1.2587, 1.2623, 1.2660, 1.2760 and 1.2814.
• 1.24 is only minor resistance until 1.25.
• 1.2330 is the next support level and it is of historic importance: this is the low point the pair reached after the eruption of the financial crisis in 2008. If this is taken, serious strong support is only at 1.2144.

Euro/Dollar  at low support before NFP – click on the graph to enlarge.

EUR/USD Fundamentals

• 8:00 Euro-zone  Final Manufacturing PMI. Exp. 45. Actual 45.1 points.
• 9:00 Euro-zone  Unemployment Rate. Exp. 11%. Actual 11%.
• 12:30 US Non-Farm Payrolls. Exp. +151K. See how to trade this event with EUR/USD.
• 12:30 US Unemployment Rate. Exp. 8.1%.
• 12:30 US  Core PCE Price Index. Exp. +0.2%.
• 12:30 US  Personal Spending. Exp. +0.3%.
• 12:30 US Personal Income. Exp. +0.4%.
• 12:30 US  Average Hourly Earnings. Exp. +0.2%.
• 14:00 US  ISM Manufacturing PMI. Exp. 54 points.
• 14:00 US Markit Final Manufacturing PMI.
• 14:00 US  Construction Spending. Exp. +0.4%.

For more events and lines, see the  Euro to dollar forecast

EUR/USD Sentiment  

• IMF Working on Plan for Spain?: Mixed reports about the IMF making contingency plans for Spain provided some hope at first, but they certainly didn’t seem serious. Spanish yields are too close to the critical 7% line where other countries received a bailout. Spanish officials deny the need for a bailout over and over again, but the markets  aren’t  buying it. The announced injection of 19 billion euros into Bankia, much more than announced only two weeks earlier, and the loss of market access of banks and regions (such as Catalonia) to the markets, mean more pressure on the government.
• Low Expectations for Non-Farm Payrolls: After  ADP and jobless claims disappointed, expectations are somewhat lower for the important Non-Farm Payrolls. The US is still growing, but growth estimates were lowered and it will find it hard to run on its own.
• Chinese PMIs look bad: Another weight on EUR/USD comes from the world’s No. 2 economy: official Chinese PMI is still in growth territory, but is getting too low. The unofficial yet highly regarded HSBC figure was revised to the downside, in contraction territory. China stood out as a strong powerhouse after the crisis, and is now suffering from its own weakness.
• Greek polls are mixed: Different polls yield different results: some show a tied between leading pro-bailout New Democracy and anti-bailout SYRIZA. Other show one of the parties leading. Each headline moves the markets. We will soon be in a “blackout” as polls are forbidden in the two weeks before the elections on June 17th.  See how to trade the Grexit with EUR/USD.
• Greek banks survivinig for now: The long awaited recapitalization of Greek banks by the EFSF (according to Bailout II) is supposed to help the banks stabilize and regain confidence. At least for now, withdrawal of funds seems like a “bank jog” more than a bank run. The bigger problem is with tax payments: many Greeks are deferring tax payments and this weighs heavily on the state coffers, which are running dry.
• Italy hides behind Spain: Italian Prime Minister Mario Monti surprised the markets with his endorsement of joint eurobonds to help resolve the financial crisis. The Italian economy is contracting quite fast and the recent bond auction was very worrying: Italy paid a dear price of a 6% yield on 10 year bonds. With Spain in the limelight, the euro-zone’s third largest economy manages to muddle through for now.