EUR/USD Aug 17 – Dropping on Weak Summit Outcome and

Euro dollar  managed to hold up pretty nicely after the disappointment from the Merkel-Sarkozy summit. But when Swiss authorities didn’t deliver  aggressive  moves to weaken the franc against the euro, also EUR/USD felt it. Will it dive lower?

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

EUR/USD Technicals

• Asian session: A relatively quiet session saw the pair steady around 1.44.
• Current range 1.4325 to 1.44.

• Further levels in both directions: Below 1.4325,  1.4282, 1.4220, 1.4160, 1.4070, 1.4030, 1.3950, 1.3838.
• Above:  1.44, 1.4450, 1.4550, 1.4650, 1.47, 1.4775.
• Yet again, 1.44 proved to be strong resistance.
• The 1.4282 switches positions once again to support. It turns into a pivotal line.

Euro/Dollar sliding lower  – click on the graph to enlarge.

EUR/USD Fundamentals

• 8:00  Current Account. Exp. -3.6 billion.
• 9:00 European CPI. Exp. +2.5%. Core CPI exp. +1.7%. Actual, 2.5% and only 1.2% for Core CPI. See analysis here.
• 12:30 US  PPI. Exp. 0%. Core PPI exp. +0.2%.

* All times are GMT.

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

EUR/USD Sentiment

• Swiss moves: The SNB announced further action against the strengthening Swiss franc, but didn’t offer a peg to the euro. This strengthened the franc against the euro, and was also seen in a falling EUR/USD.
• German slowdown: After all the related figures, including PMIs, business confidence and others showed it, the overall figure showed it: Germany’s economy almost came to a full stop, growing only 0.1% in Q2. With the French economy flat, the smaller countries are pushing the wagon, with a moderate rise of 0.2%.
• Merkel-Sarkozy summit: Leaders from France and Germany discussed a stronger governing system in order to have better control on deficits. The idea of eurobonds was rejected and the only near term proposal was for a financial transactions tax. All in all, most of the ideas were for somewhere in the distant future.
• Trichet continues guarding periphery bonds:  The  ECB finally provided the necessary intervention in the markets.. This one is serious. The ECB spent no less than 22 billion euros last week, and plans to drain the money out of the markets. This sterilized intervention is positive for the economy. In the long run, it will be hard to continue with it, and euro printing might be necessary.  In the meantime, Spanish and Italian bond yields remain stable at around 5% – this seems like a target that the ECB guards.
• Spain raises money despite trouble: Spain managed to raise money in 12 and 18 month bonds. This was helped b the calm that Trichet provided. In the meantime,  Spain suffers from 50 billion euros of unpaid bills  in local authorities and defense contracts worth 26 billion euros that the central government wishes to renegotiate.  It cannot pay.
• Italian strike: Italians are upset with the new austerity measures proposed by Berlusconi and Tremonti, especially as they were dictated by the ECB. A general strike awaits the country on August 23rd.
• 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..