EUR/USD Aug 11 – Resuming Falls After Recovery

Euro dollar  is now resuming its falls in the range that characterized its trading many times in recent weeks. It fell on rumors that French bank Societe Generale is going under, enjoyed the continued activity of Trichet in the bond markets and is now falling once again on worries regarding European banks. Will it break out?

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

EUR/USD Technicals

• Asian session: An active session sent the pair temporarily below support at 14160, but it recovered from there.
• Current range 1.4160 to 1.4220.

• Further levels in both directions: Below   1.4160, 1.4070, 1.4030, 1.3950, 1.3838.
• Above:   1.4220, 1.4282, 1.4375, 1.4450, 1.4550, 1.4650, 1.47.
• 1.4220 is only weak support. 1.4160 is more important.
• The 1.4282 switches positions once again to resistance. It is weaker now than beforehand.

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

EUR/USD Fundamentals

• 6:00  German WPI. Exp. -0.6%.
• 8:00  ECB Monthly Bulletin. Nothing special announced.
• 12:30 US Unemployment Claims. Exp. 401K.
• 12:30 US Trade Balance. Exp. -47 billion.

* All times are GMT.

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

EUR/USD Sentiment

• Trichet continues guarding periphery bonds: The  ECB finally provided the necessary intervention in the markets, following an emergency meeting on Sunday. This one is serious – Spanish bond yields are flirting with 9 month lows. Trichet said that the ECB is active in the markets and it sure is. This stabilizes the euro and the fear of contagion.  . For more on this see:  QE Landing in Europe – Euro headed south?
  
• French rumors off the table: There were rumors about a credit rating downgrade for France. They were quickly denied by rating agencies. Also the rumor that French bank Société Générale went under was denied quickly. Nevertheless, the weakness in the European banking sector weighs on the euro. And after rising, French bank stocks are falling again, and sending the euro lower.
• Bernanke uses verbal tools: As expected, the FOMC left rates unchanged and did not provide any hints about QE3, although some await the Jackson Hole Symposium on August 26 for this. What it did do is pledge to leave interest rates low until mid 2013, despite 3 dissenters. The picture that the committee painted for the US economy was quite gloomy. Stock markets are reacting in a very volatile manner..
• S&P Downgrade of the US: This historic move by S&P caused stock market sell offs, and triggered expected moves but thanks to Bernanke, they have now stabilized and so have currencies. It’s important to note that treasury yields just continued lower – a clear vote of confidence.  .
• US Job Market:  After the positive Non-Farm Payrolls report on Friday, today’s unemployment claims will provide more important information. They have stabilized lower. A significant drop under 400K will be helpful for the dollar. A rise above 430K will be depressing.