EUR/USD Apr. 26 – Recovering from Trichet’s Blow, Approaching

EUR/USD fell on dovish comments from Trichet, but manages to recover quickly and moves towards the peak as everyone is back from the long weekend. Will we see a break out of range, or will the markets await Bernanke?  Here’s a quick update on technicals, fundamentals and what’s going on in the markets.

EUR/USD Technicals

• Asian session:  Very active session sees the pair fall and even temporarily dip below 1.45 before making an impressive recovery in the Asian session.
• Current range –  1.4520 – 1.4580

• Further levels in both directions: Below 1.4580, 1.4520, 1.4450, 1.4375, 1.4282, 1.4160, 1.4030, 1.3950, 1.3860, 1.3760. 1.37, 1.3440.
• Above:   1.4650,  1.47, 1.48, 1.5020, 1.5144
• Serious resistance is only at 1.47, after previous lines have been left behind, but its noticeable that the pair stopped at 1.4650 – this could be a point of struggle later on.
• 1.4580 is only minor support, with 1.4520 being much stronger, switching sides from resistance to support.

Euro/Dollar trading quietly higher  – click on the graph to enlarge.

EUR/USD Fundamentals

• 12:00 US  S&P/CS Composite-20 HPI. Exp. -3.2%.
• 14:00 US  Consumer Confidence. Exp. 64.5 points.
• 14:00 US  Richmond Manufacturing Index. Exp. 20 points.

For more events later in the week, see the  EUR/USD forecast

EUR/USD Sentiment

• Trichet hurts Euro: The president of the ECB reiterated his words about a strong dollar and also made some general comments about inflation that is “in line”. This was enough to push the Euro lower during the Asian session. But after the dust has settled and the Europeans are back from the holiday, the Euro’s losses are erased.
• Tension towards Bernanke: The stakes are high for the FOMC Meeting on Wednesday, which will provide an answer for the continuation of QE2 and the first ever press conference following a US rate decision. See the  FOMC preview for full details.
• US Fiscal worries: It’s not Greece. It’s the US. The government is about to reach the $14.3 trillion debt ceiling on May 16th (according to recent calculations). The Republicans in Congress refuse to raise the debt ceiling if their demands aren’t met. The consequences could be a default of the US on its debt payment. The chances are very slim, but this talk is gaining traction and weakens the dollar. Needless to say, a default of the US will not only end the recovery but also send the whole world into turmoil.
• Tension in the Middle East: In Syria, a strategic country in the region, the army has been fully mobilized to depress the uprisings in Deraa, Jabla and other cities. No one knows how this bloodshed will end. In Libya, NATO forces failed to assassinate Libyan ruler Gaddafi in an ongoing crisis there. Libya produces high quality oil and the civil war there has pushed oil prices higher. Higher oil means a weaker dollar. Also Yemen, Bahrain and even Morocco are witnessing protests.
• Greek CDS continues higher: The market is definitely seeing a default in Greece, but this didn’t happen yet, and is sidelined at the moment. There were strong rumors in the market regarding a “restructuring” for Greece during the long Easter weekend. Such a precedent could have a horrible snowball effect all over the continent, stronger than the bailouts. Greece not only denies it, but also chases the CitiGroup banker that  allegedly started the rumor, although it’s obvious that the market reacted before his email. Two year yields have passed the 20% mark.
• Bailout for Portugal – Portuguese yields passed the 9.50% mark at the time of writing. The lack of support from the upcoming Finnish government and without  an operating  government in Lisbon, there’s less hope that this bailout will indeed happen. Perhaps Portugal will also default. Ireland could follow suit.
• Gold and silver recover after profit taking: Gold and especially silver have seen quite wild trading. After some profit taking, they are back up.

FXCM Speculative Sentiment Index shows that 66% of traders are short, less than last week. According to this contrarian index, this shows more gains for EUR/USD.