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Euro dollar  remains in a tight range, that is becoming narrower. Will the pair break out and make a sharp move? A positive German Ifo Business Climate figure helps the pair, but only in range.  Decisions made in the EU Summit seem hard to implement, especially regarding the IMF loan. The ECB refuses to step up  bond buying as Spain has another bond auction. Rating agencies are active, but they haven’t reached the shores of France.

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

EUR/USD Technicals

  • Asian session: Very quiet session saw the pair trading around 1.30.
  • Current range:  1.30 to 1.3060.EUR/USD Chart December 20 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 in range above 1.30- click on the graph to enlarge.

EUR/USD Fundamentals

  • 7:00 German GfK Consumer Climate. Exp. 5.5. Actual 5.6 points.
  • 7:00  German PPI. Exp. +0.1%. Actual +0.1%.
  • 9:00  German Ifo Business Climate. Exp. 106.2 points. Actual 107.2 points – nice improvement.
  • 9:40 Spanish auction results. Very successful auction: yield on 6 month bonds dropped to around 2.5%. This success sent EUR-USD above 1.3060. It might be indirect QE.
  • 13:30 US  Building Permits. Exp. 0.63 million.
  • 13:30 US Housing Starts. Exp. 0.64 million.

* All times are GMT.

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

EUR/USD Sentiment

  • IMF Loan in Trouble: One of the EU Summit decisions was to provide loans to the International Monetary Fund of around 200 billion euros in total. There is objection from some countries, within the euro-zone and outside of it, and also a major flaw: Italy is expected to contribute to the IMF, and then receive some aid from it.
  • Spain tested again:  The euro-zone’s fourth largest country will be tested again after two successful auctions last week on the eve of the new government coming to power.  Spain’s second auction  helped the euro stabilize. Italian yields are at  6.75% while Spanish 10 year yields are down to 5.15%.
  • Draghi rejects big bond buys again: The president of the ECB reiterated the refusal of the ECB to step up bond buying. This follows the line from the recent press conference. In a previous appearance in the European parliament, Draghi hinted that the ECB might be willing to act under certain conditions. In any case, bond buying or no bond buying seems a lose-lose situation for the euro.
  • France downgraded awaited  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 an answer within days 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 talks stuck: Greece’s bondholders are struggling to reach an agreement about the “voluntary” debt restructuring. The parties aren’t getting close. And, 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.
  • 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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