EUR/USD Dec. 7 – Extends Falls on Lower Bundesbank

EUR/USD  took a tumble following remarks by ECB head Mario Draghi at a press conference in Brussels on Wednesday. Draghi  was the bearer of bad news, saying  that the ECB bank  had revised downwards its forecast for  growth in the Euro-zone, and that the bloc economy would likely shrink in 2012 and 2013. The euro quickly fell on the negative report. After that downfall, the German Bundesbank joined with its lower forecasts for 2013, regarding inflation, unemployment and growth. US Unemployment Claims improved, as the key indicator beat the estimate. German Industrial Production badly disappointed. The trading weeks wraps up with three key releases out of the US – Non-Farm Employment Change, Unemployment Rate and Preliminary UoM Consumer Sentiment.

EUR/USD Technical

• Asian session: Euro/dollar was uneventful, as the pair consolidated at around 1.2965. The pair is  lower in the European session.
• Current range: 1.2880 to 1.2960.

Further levels in both directions:    

• Below: 1.2880, 1.28, 1.2750, 1.2690, 1.2624, 1.2590, 1.25, 1.2440, 1.2390 and 1.2250.
• Above: 1.2960, 1.30, 1.3030, 1.3080,  1.3140, 1.3170, 1.3290 and 1.34.
• 1.2960 is providing weak resistance as the pair has dropped sharply. 1.30 is stronger.
• 1.2880 is the next line on the downside.

Euro/dollar  slumps after negative ECB  growth forecast- click on the graph to enlarge.

EUR/USD Fundamentals

• 7:45  French Government Budget Balance. Actual. -94.6B.
• 7:45 French  Trade Balance. Exp. -4.7B. Actual -4.9B.
• 10:00 ECB President Draghi Speaks.
• 11:00 German Industrial Production. Exp. -0.4%. Actual -2.6% – big disappointment.
• 13:30 US Non-Farm Employment Change.  Exp. 89K.     See how to trade this event with EUR/USD.
• 13:30 US Unemployment Rate. Exp. 7.9%.
• 13:30 US Average Hourly Earnings. Exp. +0.2%.
• 14:55  US Preliminary UoM  Consumer Sentiment.  Exp. 82.4 points.
• 14:55 US Preliminary UoM Inflation Expectations.
• 15:00 Deutsche Bundesbank President Jens Weidmann Speaks.
• 22:00  US Consumer Credit. Exp. 10.4B.

For more events and lines, see the Euro to dollar forecast

EUR/USD Sentiment

• Euro takes a tumble after ECB statement: Following a bleak growth assessment by the ECB on Wednesday, the euro dropped sharply. ECB President Mario Draghi stated that growth in the Euro-zone was expected to drop between 0.4% and 0.6% in 2012, and to contract by at least 0.3% in 2013. The euro took the news badly,  crashing below the 1.30 level.  The  currency has had a roller-coaster week, and has lost over 150 points in the past two days.
• ECB  maintains  key interest rate:  The ECB maintained its key interest rate at 0.75%. The rate has been pegged at this record-low level since June. However, this time around,  ECB President Mario Draghi noted that the  vote was not unanimous.  Draghi alluded to a wide discussion on the issue, and stated that  a consensus was reached to maintain the current level. This remark also contributed to negative market sentiment, and hurt the euro. Clearly, the ECB is alarmed by the state of the euro-zone economy, and there is room  for a further rate cut early in 2013 if the situation does not improve.
• Greece  launches  buy-back of debt: Greece has offered to purchase 10 billion euros of its national debt, as part of the new bailout agreement aimed at resolving the country’s severe debt crisis. Market sentiment was positive after the Greek government offered a premium on markets prices for Greek bonds. The EUR 10 billion buy-back could allow Greece to retire up to EUR 30 billion worth of debt. Greece is expecting the next installment of aid on December 13, and the buy-back is scheduled to be completed by December 17. German Chancellor Angela Merkel made an about-face, hinting that Berlin could consider a write-off of its Greek loans. Until now, Germany has strenuously objected to a write-off of Greek debt, but may have to show more flexibility if Greece is to regain its financial footing. However, Merkel is unlikely to agree to a debt haircut, in any shape or form, prior to German elections in 2013.
• Spain posts solid data: There were some positive economic releases out of an unexpected source this week, as Spain posted some solid numbers.  On Wednesday. the Spanish treasury raised 4.251 billion euros in a bond auction. The average yield on 10-year bonds fell to 5.29%, down from 5.52% in November. With these positive numbers, the government  could continue to forgo an aid package. Just last week, Spain tapped into a bailout for its banks, as it requested the ESM to transfer about 40 billion euros money to Spain’s banking authority FROB. These funds will be add to Spain’s national debt. The country also posted a rise in Services PMI   and a healthy drop in unemployment claims. However, Spain is grappling with an economic recession, and may have to resort to a rescue package sometime in 2013.
• Fiscal cliff negotiations continue: Republicans and Democrats continue to battle hard over the looming fiscal cliff crisis. The Democrat proposal calls for $1.6 trillion in additional taxes over the next 10 years, with higher taxes on those earning over $250,000. The Republicans have offered $800 billion in new tax revenue from spending cuts and overhauling the tax code. However, the Republicans are split on whether to agree to higher income tax rates, and the Democrats, led by President Obama, could take advantage of the disarray in the Republican camp.   The markets are hoping that the politicians will find a compromise and avoid a crisis which could threaten the fragile US recovery. Both parties are likely to continue talking tough for a while yet, as the fiscal cliff clock keeps ticking.