EUR/USD Breaks Down on Contagion

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Yesterday it was Spain and today its Portugal – EUR/USD broke below another important technical barrier and continues the free-fall. An update on European events and on technical levels for EUR/USD.

Moody’s put Portugal on review for a credit downgrade. This took EUR/USD to the next level – the 1.2886 support line, which was the low point in April 2009, held strong for only a few hours. Moody’s decision sent the pair below this level. The pair is now trading at 1.2820. That’s not the only event:

The news

This comes after this rating agency declared that Spain’s credit rating will stay unchanged. Also Fitch was quick to say that Spain’s AAA rating won’t be hurt. This was a response to the big rumor.

Yesterday’s rumor of a Spanish 280 billion euro aid request was denied by the Spanish prime minister, José Luis Rodríguez Zapatero. He called it madness and said there is no such plan. The rumor about this possible aid request sent the Euro below 1.3080 and sent the stock markets down. The dollar enjoyed strength against other currencies.

While we’re dealing with the Iberian countries of Spain and Portugal, the Greek crisis is far from over. The coalition of Angela Merkel isn’t too keen on giving Greece the needed help. Also other European countries aren’t too eager. Also here in Forex Crunch, the news about the possible Spanish aid request generated references from German, Austrian and Finnish sites.

Further reading: Kathy Lien says that bailouts don’t prevent contagion and explains this point. Now let’s look at the technicals:

EUR/USD technical levels

EUR/USD broke 1.3080 and 1.2886 within  24 hours. These lines now provide immediate resistance for a recovery of EUR/USD. But let’s look down.

The next line of support is at 1.2707, a low point in February 2009. But this is only a minor support line. 1.2560 already provides stronger support – it was a support line more than once at the end of 2008 and the beginning of 2009.

Even lower, 1.2460 is another line of minor support and its followed by the ultimate line – 1.2330. This was the bottom for the Euro in October 2008, at the height of the financial crisis. EUR/USD didn’t trade below this point since April 2006.

More reasons for dollar strength

Also the release of the American ADP Non-Farm Payrolls assists the dollar – ADP not only showed a gain in jobs, but also last month’s report, was revised to the upside. Last month originally saw a drop of jobs, contradicting the government’s Non-Farm Payrolls that showed a gain in the private sector.

Now, ADP has aligned with the government, not in the numbers, but in the direction. We have a fresh NFP release in two days. Here’s my Non-Farm Payrolls preview.

It certainly looks like the dollar’s storm will continue.

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About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.