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EUR/USD moves towards the high end of the range, as European inflation exceeds expectations, and Bernanke’s weight is still felt on the dollar. Here’s a quick update on technicals, fundamentals and what’s going on in the markets.

EUR/USD Technicals

  • Asian session:  Quiet session sees Euro/Dollar climb gently from 1.4820 towards 1.4850.
  • Current range –  1.4770 – 1.4882

  • Further levels in both directions: Below 1.4770, 1.47, 1.4650, 1.4580, 1.4520, 1.4450, 1.4375, 1.4282, 1.4160, 1.4030,
  • Above:   1.4882, 1.5020, 1.5144, 1.5250, 1.55
  • The path is open to reach the round number of 1.50, with resistance just above it at 1.5020. Post-crisis high of 1.5144 also in sight.
  • 1.4775 has proven to be very solid as support.

Euro/Dollar at much higher ground  – click on the graph to enlarge.

EUR/USD Fundamentals

  • 6:00 German Retail Sales. Exp. +0.2%. Actual -2.1%.
  • 8:00 European  M3 Money Supply. Exp. 2.2%. Actual +2.3%.
  • 9:00 European  Unemployment Rate. Exp. 9.9%. Actual 9.9%.
  • 9:00 European  CPI Flash Estimate. Exp. 2.7%. Actual 2.8%. This might push forward the next hike.
  • 12:30 US  Core PCE Price Index. Exp. +0.1%.
  • 12:30 US  Personal Income. Exp.
  • 12:30 US  Employment Cost Index. Exp. +0.5%.
  • 12:30 US  Personal Spending. Exp. +0.6%.
  • 13:45 US  Chicago PMI. Exp. 68.7 points.
  • 13:55 US  Consumer Sentiment (revised). Exp. 70 points.
  • 16:30 US Federal Reserve Chairman Ben Bernanke talks. His press conference earlier this week hurt the dollar.

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

EUR/USD Sentiment

  • Inflation is rising in Europe: Yet again, the initial read of inflation exceeded expectations. Contrary to the US, European eye the headline CPI. No hike is expected next week, but it could push it forward from July to June.
  • Bernanke declares QE2 Lite: The first ever press conference by the Fe yielded one important decision: Maturing assets will be reinvested – the central bank will continue being active, even if it won’t expand its balance sheet. This still means printing dollars, and it weakens the dollar across the board. In addition, inflation was dismissed. This theme will accompany us for a long time.
  • Merkel prepares public for Greek default: The Europe’s powerhouse begins  acknowledging there’s no option to avoid restructuring – she sent her senior aide to test this option. This happens as the Greek budget deficit soared above expectations, and there’s no one in the market to buy Greek paper.
  • Weak US growth: Yesterday’s figures were bad – the economy grew by only 1.8% (annualized) – not enough to push unemployment down. And speaking about unemployment, the weekly jobless claims returned to the previous range, after a few good months. Very disappointing.
  • 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.

FXCM Speculative Sentiment Index shows that 67% of traders are short, less than yesterday. According to this contrarian index, this shows more gains for EUR/USD.