Euro dollar is moving up gradually at the wake of this critical week. There are reports about another coordinated action by the Federal Reserve, the euro-zone central banks and the IMF to inject €100 billion or more to debt struck countries. In addition, the ECB may finally be preparing the massive QE program worth €1 trillion. Merkel and Sarkozy are meeting today and a lot is at stake. Will a credible solution be provided this week?
Here’s a quick update on technicals, fundamentals and what’s going on in the markets.
EUR/USD Technicals
- Asian session: An active session sees the pair trade higher, after a gap higher.
- Current range: 1.3420 to 1.3480
- Further levels in both directions: Below 1.3420, 1.3360, 1.3320, 1.3250, 1.3145. 1.30 and 1.2873.
- Above: 1.3480, 1.3550, 1.3650, 1.3725 and 1.38.
- 1.3360 is strong support in current levels, with 1.3250 being the next critical line.
- 1.3550 is strong support above.
Euro/Dollar ticking up- click on the graph to enlarge.
EUR/USD Fundamentals
- 9:00 Euro-zone Final Services PMI. Exp. 47.8 points. Actual 47.5 points – more contraction confirmed.
- 9:30 Euro-zone Sentix Investor Confidence. Exp. -214 points.
- 10:30 Euro-zone Retail Sales. Exp. +0.2%.
- 15:00 US ISM Non-Manufacturing PMI. Exp. 53.6 points.
- 15:00 US Factory Orders. Exp. -0.2%.
* All times are GMT.
For more events later in the week, see the Euro to dollar forecast
EUR/USD Sentiment
- More coordinated action discussed: Last week, 6 central banks, including the Federal Reserve and ECB, coordinated to lower the dollar swap rate, in an effort to prevent a credit crunch in European banks. This provided some relief for the euro, and reflected the severity of the situation. And now, there are talks that the Federal Reserve, along with euro-zone central banks (not necessarily the ECB), will lend money to the IMF, that in turn will supply money for debt struck countries.
- ECB Finally Launching QE?: Another report that surfaced over the weekend discusses conditions under which the European Central Bank will provide (or print) a giant sum of one trillion euros, to lower the yields of Spain and Italy, allowing them sustainable funding. Stronger budget rules and strict enforcement are discussed. This can be the ultimate weapon to fight the debt crisis, but may weaken the euro as well.
- Merkozy’s fiscal union: German chancellor Angela Merkel and French president Nicolas Sarkozy are meeting in Paris to discuss the aforementioned stronger rules and a tighter economic integration of Europe: a fiscal union. Such a quantum leap forward cannot happen fast. It requires planning and wide approval. The leaders are running out of time – the EU Summit on Friday is a critical one, after many summits failed. If they get the ECB to act, the time needed to build a fiscal union will be bought.
- Italy presents plan: Italy’s Prime Minister, Mario Monti, is presenting a new plan to balance Italy and reassure markets. Success of these measures as Europe enters a recession is doubted, as well as the ability to pass everything through parliament. Monti is a technocrat PM, and doesn’t have a political backbone.
- Spain struggling: Services PMI plunged to 36.8 points, the lowest level since March 2009. In addition, Spanish municipalities owe 3 billion euros to utility companies. This forced layoffs and adds to the misery.
- China slowing : Official and independent manufacturing PMIs are moving lower. The HSBC figure points to significant contraction. Also China’s services sector, usually overlooked, is slowing and even in contraction according to some estimates. China reversed previous hikes and lowered the reserve ratio rate, allowing banks to lend more. This time, China will not be able to pull the global economy forward
- Drop in US unemployment provides hope: In recent weeks, most US figures have been positive. This is also reflected in the all-important job data. The US continues to gain jobs at a nice pace, with the unemployment rate falling to 8.6%. The services sector figure today is of high importance as well.
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