EUR/USD April 24 Elections in France and Netherlands Could

Euro dollar  edged upwards after yesterday’s (April 22nd) losses.  Election news continued to dominate the headlines, but not just in France.  The Dutch government resigned on Monday over  budget cuts, paving the  way for new elections.  With a host of disappointing releases out of the Euro-zone on Monday, and a poor reading by Euro-zone  Industrial Orders earlier on Tuesday  the markets  are likely to be  in a sour mood and may not react kindly to further bad news. There are two key releases in the US today, Consumer Confidence and New Home Sales.

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

EUR/USD Technicals

• Asian session: EUR/USD  moved upwards, changing direction from trading earlier on Monday. The pair reached a level of 1.3171 and consolidated at 1.3169.   The European session has been quiet with the pair trading at 1.3169.
• Current range: 1.3165 to 1.3212.

• Further levels in both directions: Below: 1.3050, 1.30, 1.2945, 1.2873, 1.2760, 1.2660 and 1.2623.
• Above: 1.33, 1.3360, 1.3437, 1.3486 and 1.3550.
• 1.3212 is strengthening as resistance to the pair.
• 1.3050 is a fluid line, currently providing weak support.

Euro/Dollar  trading in range  – click on the graph to enlarge.

EUR/USD Fundamentals

• 9:00 Euro-zone Industrial New Orders. Exp. +1.4%. Actual -1.3%.
• 13:00 Belgium Business Climate. Exp. -7.5.
• 13:00 US S&P/CS Composite-20 HPI. Exp. -3.5%.
• 14:00 US CB Consumer Confidence. Exp. +70.1.
• 14:00 New Home Sales. Exp. +321K.
• 14:00 US OFHEO HPI. Exp. +0.1%.
• 14:00 US Manufacturing Index. Exp. +7.

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

EUR/USD Sentiment

• Markets Ponder French Election Uncertainty: Socialist challenger Francois Hollande will face President Nicholas Sarkozy in the presidential run-off after yesterday’s inconclusive results. Hollande 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.
• Dutch Government Resigns: The Dutch government handed in its resignation on Monday, after failing to reach agreement on a  budget to bring its deficit within EU limits. The election could be a referendum on the Netherland’s relationship with Europe, and put further strain on the Euro. In the short-term, the political uncertainty threatens to undermine the Netherland’s AAA rating (Germany is the only other European country with the stellar rating).
• 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: Despite 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. With two key US releases scheduled for later on Tuesday,  we could see  some movement by the dollar.
• 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. The markets will be scrutinizing the Chinese CB Leading Index, which  will be released later on Tuesday.