EUR/USD April 23 Euro-zone Releases Disappoint Markets

After  posting a two-week high  on Friday (April 20th), Euro dollar retracted, giving up most of these gains by the start of the trading week. The markets shifted their gaze from Spain to France, where President Nicholas Sarkozy did not fare well against challenger Francois Hollande. Hollande has called for a renegotiation of  the euro zone fiscal pact,  which  could of course, have major implications for the  Euro.  Monday morning greeted the markets with  a host of disappointing releases out of the  Eurozone  this morning, particularly in the manufacturing sectors.  As  a result, we  could see the Euro drop even further as the trading week gets underway.

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

EUR/USD Technicals

• Asian session:  EUR/USD continued to rise from after Friday’s trading, hitting a high of 1.3210. and consolidating at 1.3182. The pair  is sliding in the European session, trading at 1.3147.
• Current range: 1.3110 to 1.3165.    

• Further levels in both directions: Below: 1.3050, 1.2945, 1.2873, 1.2760, 1.2660 and 1.2623.
•  Above: 1.3165, 1.3212, 1.33, 1.3360, 1.3437, 1.3486 and 1.3550.
• 1.3212 is providing weak resistance to the pair.
• 1.3050  has been breached,  with  1.30 the next  support level  below.

Euro/Dollar  sliding on  weak  Euro-zone  data  – click on the graph to enlarge.

EUR/USD Fundamentals

• 7:00  French Flash Manufacturing PMI. Exp. +47.3. Actual +47.3.
• 7:00  French Flash Services PMI. Exp. +46.4. Actual +50.3.
• 7:30  German Flash Manufacturing PMI. Exp. +46.3. Actual +49.0.
• 7:30 German  Flash Services PMI. Exp. +52.6. Actual +52.4
• 8:00 Euro-zone Flash Manufacturing PMI. Exp. +46.0. Actual +48.1.
• 8:00 Euro-zone Flash Services PMI. Exp. +47.9. Actual +49.4.

For more events later in the week, see the Euro to dollar forecast

EUR/USD Sentiment

• Uncertainty  after French Election: Socialist challenger Francois Hollande will face President Nicholas Sarkozy  in the presidential  run-off after yesterday’s inconclusive results.  favors renegotiating the  Euro-zone fiscal  arrangement in order to stimulate growth,  rather than implementing strict austerity measures.  Hollande is not considered pro-market, and the Euro could be affected, at least initially, if Hollande wins the election.
• Do Greek banks need aid?: The deadline for publishing reports was delayed for Greek banks due to the huge PSI deal. The reports, published after the Athens stock exchange closes, will be closely watched. Losing over 70% on their own government’s bonds could certainly inflict damage to their balance sheets. 25 billion euros of EFSF money was already transferred this week to Greece. Will it need more for the banks? The publication will impact the euro.
• PSI Leftovers: A small portion of Greek bonds were issued outside Greece, and therefore was immune to the Collective Action Clauses – losses could not be imposed on bondholders, like they were in local bonds.. The government in Athens delayed the deadline for the PSI over and over again as there were many holdouts and not enough “volunteers”. If bondholders insist, the dilemma will be between defaulting and triggering more worries for other countries, or paying out and having to cut more in the beaten budgets. Perhaps more bondholders were convinced to “volunteer”.
• Mediocre Bond Auction for Spain: Europe’s fourth largest economy managed to raise enough money, also for long term bonds, but paid a higher price. Yields remain around 6%, and this cannot last too long. The markets still follow the budget talks in Spain, now focusing on two regions: Andalusia and Catalonia.
• US Releases Worry Markets:  Despited some  good retail sales figures,  last week’s releases were dismal.  Existing home sales and the Philly Index dropped. More worrying were the jobless claims, that remained at elevated levels. The slowdown in unemployment cannot be easily dismissed as a one time event.
• Chinese Downturn?: China’s economic indicators continue to be a source of concern for the markets. The move to expand the yuan’s band is also seen as supportive for the Chinese economy, that requires this support. With Europe in deep trouble and the economic recovery in the US losing some of its shines, weakness in China could spell another global recession.