EUR/USD Aug 18 – Cannot Hold onto Higher Range

Euro dollar  is sliding within range after a move to a higher range didn’t work out. While Spanish and Italian bonds continue falling, the lack of growth in the euro-zone is a heavy weight on the common currency. Will it make a big dive, or is it taking a pause before the next rise?A big bulk of important US news awaits us.

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

EUR/USD Technicals

• Asian session: A quiet session saw the pair sliding lower, after losing 1.4450 beforehand. The move accelerated in the European session.
• Current range 1.4375 to 1.4450.

• Further levels in both directions: Below 1.4375, 1.4325,  1.4282, 1.4220, 1.4160, 1.4070, 1.4030.
• Above:   1.4450, 1.4550, 1.4650, 1.47, 1.4775.
• 1.4450 is still important, despite the temporary breach that sent the pair to a higher range.
• 1.4325 proved to be important on a swing lower.

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

EUR/USD Fundamentals

• 12:30 US  Unemployment Claims. Exp. 402K.
• 12:30 US  CPI. Exp. +0.2%. Core CPI exp. +0.2%.
• 14:00 US  Philly Fed Manufacturing Index. Exp. 4 points.
• 14:00 US New Home Sales. Exp. 4.91 million.
• 14:00 US  CB Leading Index. Exp. +0.2%.

* All times are GMT.

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

EUR/USD Sentiment

• 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%.
• Spanish bond yields lowest in 9 months:  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 currency. 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 extended their drops to 4.9%. For Spain, this is the lowest level since November, before the Irish crisis erupted.
• Merkel and Sarkozy disappoint: 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.
• Spain raised 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.
• US Producer Prices rise: US PPI exceeded expectations. This lowers the already low chances of QE3. Today we have the more important CPI. The Fed closely watches Core CPI. Last month it edged higher, showing that no deflation is in the horizon. Another factor to watch is unemployment claims. They managed to drop to the lowest level since April. If this continues, it can provide some hope in a sea of bad US figures.