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Euro dollar  is sliding to lower ground before the press conference by Jean-Claude Trichet. Trading conditions are very choppy. The dollar enjoys the Japanese intervention. Spanish and Italian bond yields started sharply lower, but they are creeping up. Will Trichet join the currency war and intervene in the markets as well?

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

EUR/USD Technicals

  • Asian session: A very choppy session on the background of the Japanese intervention sent the pair to resistance at 1.4375, and it is retreating from there.
  • Current range 1.4225 to  1.4282.EUR USD Chart August 4 2011
  • Further levels in both directions: Below   1.4220, 1.4160, 1.41, 1.4070, 1.4030, 1.3950, 1.3838, 1.37.
  • Above:   1.4282, 1.4325, 1.4375, 1.4450, 1.4550, 1.4650, 1.47, 1.4775.
  • 1.4282 now has a minor role, with 1.4325 being tougher resistance..
  • 1.4160 remains key support on the downside.
  • Note that significant support is above the round 1.40 line, at 1.4030, in case of another sharp drop.

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

EUR/USD Fundamentals

  • 10:00  German Factory Orders. Exp. -0.4%.
  • 11:45 European rate decision. Exp. unchanged at 1.50%.
  • 12:30 Jean-Claude Trichet’s press conference. A softer tone is expected. See preview.
  • 12:30 US  Unemployment Claims. Exp. 404K.

* All times are GMT.

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

EUR/USD Sentiment

  • Japan intervenes:  One day after Switzerland, the Japanese authorities intervened in the markets in a more direct manner. USD/JPY jumped over 250 pips, and this had some effect on the euro as well. The Swiss measures had a limited effect. The Japanese move, uncoordinated with other countries, is likely to be limited as well, at least for EUR/USD.
  • Trichet’s words awaited: No rate hike is expected in the euro-zone. The moves will depend on Trichet’s words in the press conference, which will likely be softer given lower inflation and a general slowdown. There are several other options. See the ECB Preview for more. This is the key event today. Trichet can also use the attention at the press conference and buy bonds in the meantime. He did it in the past. Why should he buy bonds? The answer is below.
  • Spanish and Italian troubles: Italian and Spanish bond yields are still very high, above 6%, despite a drop seen early in the day. It is clear that the tools announced in the EU Summit are limited and unavailable at the moment. The only factor that can act is the ECB, with a massive bond buying program – QE Europe.  Can Jean-Claude Trichet ecome a super hero like Jean-Claude Van-Damme?
  • Finally some good news: European consumers are spending more than expected. The rise in retail sales, that comes not only from Germany and France, is one positive figure in the sea of red. This made the break yesterday. Today’s factory orders will be eyed.
  • US Downgrade?: The debt ceiling deal was enough to prevent a default, but in the long run, the US debt projections aren’t too good. The US is awaiting a credit rating downgrade, but only by some rating agencies. Here’s how it is likely to impact the greenback.
  • Mediocre US data: The American manufacturing sector is almost at a standstill. These are fresh figures for July, that provide hints for the Non-Farm Payrolls. This joins bad GDP data. Not only did the US grow less than expected in Q2 2011, but Q1 was unexpectedly revised to a growth rate of only 0.4%. This triggered worries that Ben Bernanke could hit the printing presses once again, with QE3, after ruling it out not so long ago. The services sector did a little better, with a smaller drop in growth. ADP NFP came out better than expected, but this didn’t reflect the actual result in the NFP last month. Today’s unemployment claims are the last hint before the big event tomorrow.