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Euro dollar  is sliding slower within the range, as cracks appear in the upcoming package for Greece. This includes the long awaited haircut deal (PSI) which might not see too many happy volunteers after all. The multiple downgrades from Moody’s don’t improve the mood either. We have a busy day ahead on both sides of the Atlantic.  

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

EUR/USD Technicals

  • Asian session: A surprisingly active session saw the pair continue falling as on Moody’s downgrades.
  • Current range:  1.3145 to 1.3212.EUR/USD Chart February 14 2012
  • Further levels in both directions: Below:   1.3145, 1.3060, 1.30, 1.2945 and 1.2873.
  • Above:  1.3212, 1.3280, 1.3333, 1.3450, 1.3550 and 1.3650.
  • 1.3280 worked as tough resistance and marked the beginning of the fall.
  • 1.3145 continues to strengthen. 1.3060 is also strong beneath.

Euro/Dollar lower after Moody’s – click on the graph to enlarge.

EUR/USD Fundamentals

  • 7:45  French Non-Farm Payrolls. Exp. +0.2%. Actual =0.2%.
  • 10:00  German ZEW Economic Sentiment. Exp. -11.8 points. Actual +5.4 points, much better than expected. The euro rises.
  • 10:00 Euro-zone  ZEW Economic Sentiment. Exp. -21.1 points. Actual -8.1 points.
  • 10:00  Industrial Production. Exp. -1.1%. Germany and France already disappointed. Actual -1.1%, as expected.
  • 13:30 US  Retail Sales. Exp. +0.8%. Core sales exp. +0.6%.
  • 13:30 US  Import Prices. Exp. +0.3%.
  • 15:00 US Treasury Secretary Tim Geithner talks.
  • 15:00 US  Business Inventories. Exp. +0.4%.
  • 22:40 US FOMC member  Dennis Lockhart talks.

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

EUR/USD Sentiment

  • Cracks in Greek deal: Despite the chaos in Athens, the Greek parliament approved the new austerity, but worries remain. The main candidate for leading the government after April’s elections, Antonis Samaras, said that the measures that were just approved will likely be renegotiated after the elections. He’s probably looking at the polls. A Polish official said that the situation now enables an easier Greek exit of the euro. He’s not celebrating the progress in Athens, but rather celebrating the success of the ECB’s LTRO. In addition, Finland demands collateral from Greece once again. The head of Merkel’s sister party,  Horst Seehofer of the CSU, wants a referendum about the euro.
  • Moody’s downgrades: The rating agency didn’t downgrade France as S&P did, but it act on Italy, Spain and 4 other euro-zone countries. This follows downgrades to Spanish banks by other agencies yesterday. As Italy is trying to convince markets that things are getting better and Spain is working on labor and banking reforms, these blows certainly don’t help. At least the LTRO keeps their bond yields relatively stable.
  • PSI Shaky: The “voluntary” 50% haircut for private bondholders agreed in October turned to around 70%, and there aren’t too many volunteers. If there are is a majority of volunteers, Greece could pass legislation that would force the others to hop along. It’s called Collective Action Clause. But if 50% participation isn’t reached?
  • Ball Passes to Brussels: Amid this mess, Wednesday’s Eurogroup meeting is supposed to to approve the deal. The statement from Samaras is likely to echo strongly. German finance minister Wolfgang Schäuble, said that ¨Greek promises are not enough”, after so many have already been broken in the past. Greece still has to find 325 million euros of cuts until this meeting. The situation remains fragile.
  • Recession looming: GDP figures published on Wednesday will likely show that the euro-zone contracted in Q4. This also includes Germany. For Italy, it will likely be the second quarter of contraction in a row, making it an official recession. Note that Japan posted a deep contraction in Q4, and this doesn’t bode well for Europe.
  • ECB opens door to Greek haircut:  The pressure for Official Sector Involvement succeeded. Mario Draghi made a “one more thing” last moment Steve Jobs style statement and opened the door to a contribution by the ECB to the Greek bailout. But this depends on politicians first.
  • Portugal awaits Greece: Portuguese yields remain on high ground. The path chosen for Greece will likely be followed by the small Iberian country in the infamous “contagion” effect that is feared.
  • Bernanke dismisses job growth:  The  drop of the unemployment rate to 8.3% and the gain of 243K jobs  in January gave a lot of hope for the US. Nevertheless, in a testimony in Washington, Ben Bernanke dismissed the positive figure. He mentioned the employment-to-population ratio and said that 8.3% understates the real state of unemployment, which he sees as quite gloomy. So, QE3 still has a chance in March,  even if quite low. Jobless claims fell once again to 358K, but in another speech today, Bernanke will likely continue his soft stance. The meeting minutes are awaited on Wednesday. They will show how dovish the FOMC is.
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