EUR/USD Breaks Down to 2 Month Low – 7 Reasons

Euro/dollar finally made a move – the pair took a dive through support at 1.3380 and then through a second support line at 1.3212 and is now at a two month low.

The hangover from the EU Summit is only one reason in a series that took the pair down. Here is a quick update on 7 reasons for this fall:

1. EU Summit: 26 out of 27 leaders decided to take measures to tackle debt problems. While the proposals are good, it will take a very long time to ratify them, and they don’t address the current crisis.
2. Finland reluctant to agree: the northern EU member still talks about opting out of the permanent bailout mechanism, if its terms aren’t satisfied. This adds fuel to the fire.
3. Sarkozy accepts downgrade: The president of France began preparing the media and the public for a downgrade, acknowledging what he and other officials rejected for so long. S&P already warned that France may not only lose its perfect AAA rating, but even get a two notch downgrade.
4. Moody’s bad mood: A second rating agency poured a lot of cold water on the EU Summit results and warned that euro-zone countries could be downgraded in coming months. Also Fitch provides its criticism and says that pressure is higher.
5. Commerzbank: Not only French banks are in trouble. also the large German bank is in talks with the German government regarding aid.
6. ECB not helping: Not only did Mario Draghi reject increased bond buying, fresh figures show that the ECB reduced its bond buying to only 635 million – a tiny sum in comparison to previous weeks and to the needed “bazooka”.
7. Intel warns: the giant US chip maker warned on its earnings. This comes after many positive corporate reports and also after positive US indicators.

EUR/USD is now trading just under 1.32, after falling below 1.3180 earlier. The 1.3212 line was a low at the end of November.

More significant support is at 1.3145, which was the low at the beginning of October, and the lowest level since January. The round number of 1.30 is next.

Resistance is now at 1.3212, followed by 13285 – the lines that were broken earlier, with 1.3380 being the next barrier. For more on the pair, see the euro/dollar forecast.