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Euro dollar  remains in a very limited trading range as most financial centers return to business. Italian 10 year bond yields top the 7% mark once again, before significant US figures are released. Recent data shows that the bias against the euro is still too strong. Will we see a significant move now?

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

EUR/USD Technicals

  • Asian session: A quiet session saw very slow movement around the 1.3060 line.
  • Current range:  1.3060 to 1.3145.EUR.USD Chart December 27 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 around the pivotal line- click on the graph to enlarge.

EUR/USD Fundamentals

  • 14:00 US  S&P/CS Composite-20 HPI. Exp. -3.2%.
  • 15:00 US  CB Consumer Confidence. Exp. 58.5 points. See how to trade this event with USD/JPY.
  • 15:00 US  Richmond Manufacturing Index. Exp. 6 points.

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

EUR/USD Sentiment

  • Oversold conditions: For a second week in a row, CFTC data showed that the number of net short contracts is at extreme levels. When everybody is short, there’s no one left to sell. This could change in the next days.
  • Trade volume still low: London has a second day of vacation after Christmas and this weighs down on volume. The return of US markets should provide some fuel. Trading volume will rise tomorrow, but will likely stay low until January 3rd.
  • Italian bond yields still high: Despite the massive loan from the ECB, bond yields remain high. This is especially worrying for the euro-zone’s third largest economy, Italy. Spanish bond yields are at 5.37%.
  • US – Housing looks bad, employment looks good  : 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. Also Q3 was worse than reported, with lower growth, only 1.8%. Another drop in jobless claims provides hope.
  • France downgrade delayed  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. The publication of the report about euro-zone countries has been delayed to January.  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.
  • The day after the euro: Some financial institutions are already working on contingency plans for the day after the euro. Symbols such as ITL (Italian Lira), ESP (Spanish Peseta) and GRD (Greek Drachma) are revived in computer software systems, but there is no confirmation about printing the old money. There was one rumor about the Irish mints working on printing the Irish punt (IEP), but this was never confirmed.
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