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Euro dollar  broke above the frustrating range. It already managed to escape the narrowing channel to the upside and is now at critical resistance. The strong IFO figure certainly helped it. No big news broke around Greece, and the common currency enjoys the calm, which will probably be temporary. There are too many open questions on the table: IMF contribution, Subordination by the ECB, and more. We’ll get to see if US unemployment continues the positive trend, as rising oil prices make a stronger impact.

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

EUR/USD Technicals

  • Asian session: A relaxed session saw downtrend resistance being broken, without the pair moving too much. Another surge began in the European session.
  • Current range:  1.3280 to 1.3333.EUR/USD Chart February 23 2012
  • Further levels in both directions: Below:   1.3280, 1.3212, 1.3145, 1.3060, 1.3060, 1.2945, 1.2873 and 1.3760.
  • Above:   1.3333, 1.3450, 1.3550 and 1.3650.
  •  1.3333 is the line capping the year’s highs. A break above would be a bullish sign.
  • 1.3212 is weaker support now. 1.3145 strengthens.

Euro/Dollar attempting to move higher  – click on the graph to enlarge.

EUR/USD Fundamentals

  • 9:00  German Ifo Business Climate. Exp. 108.7 points. Actual 109.6 points. Also accompanying figures surprised. This sent the pair to new 2012 highs.
  • 13:30 US Unemployment Claims. Exp. 352K. See how to trade this event with EUR/USD.
  • 15:00 US  OFHEO HPI. Exp. +0.2%.
  • 16:00 US  Crude Oil Inventories. Exp. +0.9 million. A rise in inventories could help the dollar.

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

EUR/USD Sentiment – Details of hurdles

  • Collective Action Clauses for Greek Bondholders: Lawmakers in Athens are expected to approve the CACs. This law means that if 66% of private bondholders agree to a haircut, it will be forced on the others. Due to the  insistence  of the IMF, the private sector haircut was raised to a nominal value of 53.5%, voluntarily of course. This means around 73% in real terms. Note that some hedge funds have an interest to trigger the Credit Default Swaps, as they will more money on a default.
  • Subordination by the ECB: The European Central Bank already swapped its Greek bonds to ones that would be immune of the aforementioned CACs. This means that they have priority. This could trigger an official default by the rating agencies, triggering CDS.
  • IMF Contribution Only in Second Week of March: The International Monetary Fund, which is massive funding from the US, is expected to provide a much smaller contribution to the second bailout. This means that EU countries will have to contribute more. The decision will take place only in the second week of March.
  • Plan B still possible: Despite the deal, things, such as the IMF contribution or more Greek misses, could still go wrong. There are reports about plans made in Germany and the US for a  Greek bankruptcy on March 23rd, when Athens will raise a white flag and a bank holiday will be announced. Here are  5 more ominous signs that Greece is pushed to the corner.
  • ECB LTRO II: The first unlimited 3 year loans managed to stabilize the banking system and to create an incentive for banks to buy Italian and Spanish bonds. The second LTRO is due on February 29th and can attract even 1 trillion euros. The success of this operation can make European leaders feel safe and let go of Greece.
  • US Housing still sensitive:  The sensitive housing sector has shown minor improvement via the existing home sales figure  . Single family houses are still struggling, as well as foreclosures. The trend of falling jobless claims, at least in the 4 week moving average, is expected to continue.
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