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Euro dollar  is making another attempt to move higher, after a breakout yesterday proved to be temporary. Yesterday’s huge indirect QE operation by the ECB is still digested as volume gets thinner before the holiday season. The highly anticipated French downgrade didn’t happen yet. Is S&P waiting for even thinner volume? Today we have important US indicators.

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

EUR/USD Technicals

  • Asian session: A quiet session after the storm saw consolidation under 1.3060. A move higher began in the European session.
  • Current range:  1.3060 to 1.3145.EUR/USD Chart December 22 2011
  • Further levels in both directions: Below  1.3060, 1.30, 1.2945, 1.2920, 1.2873 , 1.2720 and 1.2580.
  • Above:   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 even though it was temporarily broken.

Euro/Dollar moving higher- click on the graph to enlarge.

EUR/USD Fundamentals

  • 13:30 US Final GDP. Exp. 2%.
  • 13:30 US  Unemployment Claims. Exp. 376K. See how to trade this event with USD/JPY.
  • 14:55 US Revised Consumer Sentiment. Exp. 68.1 points.
  • 15:00 US  CB Leading Index. Exp. +0.3%.

* All times are GMT.

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

EUR/USD Sentiment

  • ECB Indirect QE: The European Central Bank conducted a massive 3 year financing operation (LTRO). Banks can pledge collateral, including of low grade and get financing. This could explain the huge success of Spain’s bond auction. Indirectly, the ECB encourages banks to buy sovereign bonds, and gives them a nice arbitrage. Consensus stood on around 300 billion, while the actual result was above 489 billion euros. It sent the euro higher, but the pair then “sold the fact”.
  • Trade volume dropping: Christmas is just around the corner and volumes are lower, so it’s important to be cautious.
  • New Spanish government: The new Spanish prime minister, Mariano Rajoy, presented his government. The new treasury secretary is Luis de Guindos. He already served as a minister under the previous conservative government of Jose Maria Aznar from 2002 to 2004. In the past few years, de Guindos was in the private sector. One of his positions was for Lehman Brothers, as an adviser for European affairs. Spanish bond yields rose in the aftermath of the LTRO and continue rising, currently at 5.32%. Italian 10 year bond yields are at 6.75%.
  • 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.
  • 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. In the meantime, Hungary was downgraded to junk status.
  • US – Housing data still  worrying  : After building approvals and housing starts exceeded expectations, existing home sales were low and saw significant downwards revisions. This sector is critical for US growth. Today we will get a final look at Q3, and an updated figure on jobless claims which reached a 3.5 year low last week.