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EUR/USD is losing ground, hour by hour, pushed by rising US yields and on the eve of the EU Summit. Only a dramatic announcement will stop the bleed. Update

Euro/Dollar is just above 1.32 at the end of the day in the US. Since the US session began, the common currency dropped constantly, losing over 150 pips. Why?

One of the main drivers was the rise in yields on US treasury yields. The tax cut deal reached by Obama and the Republicans passed another hurdle. It’s going to weigh on the deficit and will make it harder for the US to pay its debt causing a sale of bonds – raising the yield,  which pushed forward and rose above 3.5%.  –

Absurdly, this helped the dollar -fresh fear sends money to safe haven currencies with the dollar leading the pack. USD/JPY made a breakout, even though the yen is also a “safe haven” currency, and the Swiss franc also enjoyed this status, especially against the weak pound – GBP/CHF is at an all time low.

EU Summit

In Europe, the situation is still worrying – Spanish bond yields are a good barometer for the debt crisis – they touched the all time high of 5.60% before calming down. The Irish parliament did pass the bailout plan, but there are still worries about Portugal’s finances.

The leaders will discuss what’s next for bailouts – a permanent and convincing mechanism is needed for this, and there are currently many doubts about the leaders being able to reach such an agreement.

An option that gave hope – printing euros by the ECB, is off the agenda. Any bond buying made by the central bank is  sterilized  (no money printed), and the capacity is very limited.

EUR/USD Lines

The next significant line of support is 1.3180, which was a tough line recently. Below, 1.3114 is a minor line that worked way back in the spring. The obvious round number of 1.30 is next, followed by the lowest level in recent months – 1.2970.

Above, 1.3267 is a minor line of resistance, followed by 1.3334. Significant resistance is found at 1.3440. A breakout above this line was very short lived.

See more lines, analysis and outlook of events in the EUR/USD forecast.