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EUR/USD continues to dig lower and is getting close to the round 1.40 level. Will it break below the long term range? The reasons for the current fall are quite wide. 7 Reasons for the downfall.

Euro/dollar doesn’t take a vacation on Labor Day. The thin volume just exacerbates the situation.

  1. Merkel’s defeat: The German chancellor’s CDU party was hit in local elections held in Merkel’s home state. This shows disapproval for her government’s move.
  2. Finland doesn’t let go: The northern country is looking for a compromise but isn’t willing to retreat on the demand to receive collateral from Greece. This can trigger a default.
  3. Slovaks also want collateral: The Slovak finance minister says that his country also wants collateral from Greece.
  4. Greece doesn’t meet obligations: The debt hit country failed to reach the deficit target and the EU / IMF delegation left the country. They now expect Greece to do more, but it’s uncertain if the Greek government wants or can push through more austerity.
  5. Italy backs down on austerity: The EU’s third largest country let go of some of the austerity measures that it promised in order to get the ECB to buy its bonds. Berlusconi promised alternative measures. The ECB isn’t convinced and apparently let the yields run up to 5.5%.
  6. Rumor: There is a rumor that Italy will get a credit rating downgrade from Moody’s. This also added to the pressure. While this sounds logical, the rumor on a day of thin trading looks suspicious.
  7. Weekend press: Over the weekend, there have been many gloomy articles about the state of the euro. Many referred to the constitutional court ruling in Germany due on Wednesday. This court isn’t likely to halt the bailouts, but will probably require parliament approval for the next moves.

EUR/USD is now at 1.4115, just above minor support at 1.41. Further support is at 1.4030, followed by 1.3950. Resistance is at 1.4160, followed by 1.4220 (above the gap).

For more about the pair, see the euro/dollar forecast.