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Euro.dollar lost the 1.30 line, but didn’t get too far yet. The pair hit a fresh 11 month low at 1.2970. The year-to-date low is around 100 pips away.

This continues the terrible week that the euro is experiencing in the aftermath of the EU summit. For this specific move under 1.30, there are two main reasons:

  1. Italy had a poor bond auction – the yield on new 5 year bonds was almost 6.50% – this is too high for 10 year yields and higher than the previous auction. This disappointment comes after Spain got lower yields this week.
  2. Jens Weidmann, head of the Bundesbank, said that the ECB governing council is increasingly skeptical of the SMP program – this is the bond buying program. Many want the program to be enhanced in order to lower yields. The key is German rejection, and it remains strong. Whatever the ECB does at this point, it’s a lose lose situation.
  3. Another rumor that S&P may downgrade France. This will not come as a surprise, as the credit rating agency already warned about a two-notch downgrade for France.

Where Now?

The pair may find some support at 1.2920, which was a minor line around a year ago. Much more important support is at 1.2873, the year to date low recorded back in January.

If 1.2873 fails, further support is at 1.2720, with a very strong line only at 1.2580.

Resistance is at the round number of 1.30 just broken, with minor resistance at 1.3060.

For more levels and analysis, see the EUR/USD forecast.