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Euro dollar  is trading very choppily in range after the effect of Trichet’s bond buying faded away and the S&P downgrade of the US continues to rock markets. All eyes are now on Ben Bernanke: will he release hints about QE3?  

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

EUR/USD Technicals

  • Asian session: An active session saw the pair rising off support at 1.4160 and moving up, capped by 1.4282.
  • Current range 1.4220 to 1.4282.EUR USD Chart August 9 2011
  • Further levels in both directions: Below  1.4220, 1.4160, 1.4070, 1.4030, 1.3950, 1.3838.
  • Above:    1.4282, 1.4375, 1.4450, 1.4550, 1.4650.
  • 1.4220 is only a weak line. 1.4160 is the line to watch on the downside.
  • The gap line at 1.4282 (also a historic peak) was closed and this line switched back to important resistance.

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

EUR/USD Fundamentals

  • 6:00  German Trade Balance. Exp. 12.9 billion. Actual 11.5
  • 12:30 US  Nonfarm Productivity. Exp. -0.6%.
  • 12:30 US  Unit Labor Costs. Exp. +2.1%.
  • 18:15 FOMC Statement. See preview here.

* All times are GMT.

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

EUR/USD Sentiment

  • All Eyes on “The Bernank”: While no press conference will accompany this statement by the FOMC, it holds high importance. Many suggest that due to the current stock market rot and the slowdown in the US and everywhere else, the Federal Reserve will begin hinting of a third QE program. Such hints will weaken the dollar, also against the euro. No change in policy will boost the dollar. I believe that the Fed will avoid such hints. Here are 5 reasons why NOT to embark on QE3 in the FOMC preview. The main reason is that QE fights deflation, and deflation is not a risk like last year.
  • Trichet boosts the markets: The  ECB finally provided the necessary intervention in the markets, following an emergency meeting on Sunday. This one is serious – Italian and Spanish bond yields continue plunging for a second day in a row. Spanish bond yields are under 5% and Italian yields are at 5.10%. The spread with German bunds is falling. Trichet said that the ECB is active in the markets. This stabilizes the euro and the fear of contagion. Before making this move, the ECB managed to get significant promises, especially from Berlusconi,  while the changes to the EFSF are awaited. Note that if the bond buying is indeed massive and unsterilized, this is actually a form of quantitative easing – euro printing, that could eventually flip against the euro. For more on this see: QE Landing in Europe – Euro headed south?
  • S&P Downgrade of the US: The historic downgrade of the US had the expected initial impact on currencies. There have been emergency discussions among G-7 and G-20 officials, and the Japanese said they would closely follow markets. In the meantime, it seems that everybody is holding their breath awaiting Bernanke. EUR/USD is holding up remarkably well, thanks to Trichet.
  • A positive Non-Farm Payrolls report for a change: After so many US figures disappointed, the jobs report was finally OK. The US economy created 117K jobs and a small drop in the unemployment rate was seen. When the dust settles from the ECB intervention and the credit rating downgrade, this important figure, as well as more data awaiting us later this week on both sides of the Atlantic, will return to dominate.