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Euro dollar  is now trading in a more narrow range, as the week nears an end. Today’s calendar is light in comparison with yesterday’s very busy one, yet a new storm could be brewing from the direction of credit rating agencies. Will Spain, Italy and especially France receive downgrades?  

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

EUR/USD Technicals

  • Asian session: Very quiet session saw stability in the 1.30 – 1.3060 range. This continued into the European session.
  • Current range:  1.30 to 1.3060.EUR/USD Chart December 16 2011
  • Further levels in both directions: Below  1.30, 1.2945, 1.2920, 1.2873 , 1.2720 and 1.2580.
  • Above:   1.3060, 1.3145, 1.3212, 1.3280, 1.3380, 1.3420,  1.3480 and 1.3550.
  • 1.2945 is the trough reached after 1.30 was lost, but the really important support is the YTD low of 1.2873.
  • 1.3145 remains critical resistance now, if 1.3060 is reconquered.

Euro/Dollar above 1.30- click on the graph to enlarge.

EUR/USD Fundamentals

  • During the day: Troika mission to Greece concludes visit.
  • 10:00 Euro-zone  Trade Balance. Exp. +1.3 billion.
  • 13:30 US CPI. Exp. +0.1%. Core CPI exp. +0.1%.
  • 16:15 US FOMC member Charles Evans talks. Dovish tone expected.
  • 17:00 US FOMC member Richard Fisher talks. Hawkish tone expected.

* All times are GMT.

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

EUR/USD Sentiment

  • Will S&P downgrade France today? S&P cut the American credit rating late on Friday, after the close. Will they follow this procedure for France? Standard and Poor’s  warned all euro-zone countries, apart from Greece, that their rating is endangered.  France, Italy, Spain and others received a two-notch warning.  The rating agency promised a quick answer and official talk from Paris begins preparing the public for a downgrade, saying “it’s not the end of the world” and similar comments. If France loses the AAA rating, so does the EFSF bailout fund. Moody’s and Fitch also added their warnings.
  • Greek spotlight: The EU / ECB / IMF troika already released some depressing comments on the slow progress. Today they will complete their mission. Greece’s unemployment rate rose to 17.7% in Q3, much higher than 16.3% in Q2. And yet again, the deficit figures for 2011 were revised for the worse. In addition, the pace of withdrawals from Greek banks intensified recently, as the chances of leaving the euro-zone rose.  This Greek bank run  could bring down the system.
  • No Swiss sugar rush: The SNB didn’t lift the 1.20 floor under EUR/CHF – not to 1.25 nor 1.30. This sent EUR/CHF crashing, and also weighed on EUR/USD.
  • Spain distances itself from Italy:  Spain had two successful bond auctions this week, while Italy had a poor one. This is seen in the yields. Spain’s second auction helped the euro stabilize. A vote of confidence is expected today in the Italian parliament.
  • Bernanke doesn’t change policy: The only change seen in the FOMC Statement was a more optimistic view of the labor market. Other than that,  the same policy remains unchanged, low interest rate pledge, Operation Twist, etc. The same dissenter, Evans remained. Though this was widely expected, it sent the dollar higher and EUR/USD to 1.30.
  • Draghi provides no help: The ECB lowered the interest rate to 1%  eased collateral rules for banks and offered 3 years loans. But on the other hand, ECB president made it clear that the ECB would not scale up its bond buying.  One ECB member said the central bank could scale up bond buying, but reality remains different: the ECB scaled down bond buying to less than one billion euros last week. Looks like a lose-lose situation for the euro.
  • Positive outcome of big bulk of US data: Jobless claims fell to 366K, the lowest in 3.5 years. Also the Philly and New York Fed indices exceeded expectations, including growth in the employment components. On the other hand, industrial output fell. All in all, the US continues to shows good signs of growth, including in jobs.
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