EUR/USD Aug. 22 Steady Prior to Greek Debt Talks

EUR/USD was steady following yesterday’s (Aug. 21) gains, as the markets are buoyed by speculation that the ECB will implement steps to tackle the debt crisis. However, market sentiment could quickly shift over worries about a “manageable” exit by Greece as the Greek PM meets with European leaders to request an extension  of the bailout package. There are no scheduled Euro-zone releases today, so the markets will  be focused on two key releases out of the US – Building Permits and the FOMC Meeting Minutes.

Here’s an update about technical lines, fundamental indicators and sentiment regarding EUR/USD.

EUR/USD Technical

• Asian session: Euro/dollar dipped to 1.2454. In the European session, the pair has edged upwards.
• Current range: 1.2440 to 1.2520.

Further levels in both directions:    

• Below: 1.2440, 1.24, 1.2360, 1.2330, 1.2250, 1.22, 1.2144, 1.2043, 1.20, 1.1876 and 1.17.
• Above: 1.2520, 1.2623, 1.2670, 1.2743 and 1.2814.
• Note that the pair enjoys uptrend support – it started in mid-July and the pair bounced off this line.
• 1.2520 is the next resistance line, 1.2623 is stronger.
• 1.24 has strenthened in support as the pair trades higher.

Euro/Dollar  steady before Greek  debt talks  – click on the graph to enlarge.

EUR/USD Fundamentals

• 14:00 US Existing Home Sales. Exp. 4.52M.
• 14:30 US Crude Oil Inventories. Exp. 0.1M.
• 18:00 FOMC Meeting Minutes.

EUR/USD Sentiment

• Greek PM seeks bailout extension: Greece successfully raised funds last week and avoided a default on the August 20th deadline, but much work remains to be done. Prime Minister Antonis Samaras is seeking an extension until 2016 to meet the bailout targets, while Germany and Greek creditors object to giving Greece more time and more money. Samaras will meet with Euro-zone chief Jean-Claude Juncker in Athens on Wednesday, and will be hosted by French President Hollande and Chancellor Merkel later in the week. In the meantime, talks about a manageable Grexit are surfacing: this time from the ECB’s Jörg Assmussen, that echoed Eurogroup chief Juncker. Talks with the troika will continue in September. Greek Finance Minister Yannis Stournaras stated that the government was considering presenting the troika with an austerity plan with spending cuts of some 11.5 billion euros. See how to trade the Grexit with EUR/USD.
• Markets  react postively to report over  ECB cap: The markets are abuzz over a report in Der Spiegel that the ECB intends to cap peripheral Euro-zone bond yields. After Spain finally submits its request (still awaited for more than two weeks), the ECB will buy bonds en masse, and will defend a preset yield like the SNB defends the EUR/CHF floor. Such a strong commitment will likely calm investors, as long as the ECB doesn’t have seniority. For its part, the ECB dismissed the Der Spiegel article, calling it “absolutely misleading”. Despite the ECB denial, the euro is up and Spanish bond yields are down.
• Merkel pledges support for euro, ECB: German Chancellor Angela Merkel  declared that “everything” must be done to save  the  euro, and also provided her support for the ECB’s proposal to buy the bonds of struggling countries. Under the ECB plan, tough conditions would be imposed on any country whose bonds the ECB would purchase.  As well, that  country would have to buy debt through Europe’s bailout funds before the ECB would act. With Merkel under pressure to take a tough line with Greece,  her talks with Greek PM Samaras later this week  promise to be anything but smooth.    
• Mixed signals continue in the US: The US economy continues to zigzag and present a confusing picture to the markets. The manufacturing sector (as seen in the NY and Philly indices) and the housing sector, which continues to surprise. Retail sales came out better than expected and jobless claims remain at relatively low levels. The markets will be carefully watching key housing data on Wednesday and Thursday.
• QE in US?: Uncertainty continues over QE in the US, as speculation over possible Fed intervention refuses to go away. Boston Federal Reserve President Eric Rosengren recently declared that the Fed should implement QE3 in order to help the troubled US economy. The fear of deflation triggered QE2. Deflation isn’t here yet, but the recent slide in inflation gives fuel to the QE3 camp. Fed Chairman Bernanke did his best to pour more cold water on QE intervention, calling it a program of “diminshing returns”.  It’s a fairly safe bet that the US economy would have to produce some abysmal numbers before Bernanke would  consider any action.