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Euro dollar  is trading in narrower ranges as Germany prepares for another bond auction. With a light calendar, it seems that the markets are waiting for tomorrow’s rate decision. The one thing that can break the current calm is Greece. The debt struck country is getting closer to an outright hard default.

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

EUR/USD Technicals

  • Asian session: A slow session saw the pair hanging around 1.2760.
  • Current range:  1.2760 – 1.2873EUR/USD Chart January 11 2012
  • Further levels in both directions: Below   1.2760, 1.2663, 1.2580, 1.2520 and 1.24.
  • Above:   1.2873, 1.2945, 1.30, .13060, 1.3145, 1.3212 and 1.3280.
  • The break above 1.2760 isn’t confirmed yet. 1.2873 is much more serious resistance.
  • The big level below is 1.2587, and other levels are more minor.

Euro/Dollar losing New Year gains- click on the graph to enlarge.

EUR/USD Fundamentals

  • 10:00 Euro-zone  Final GDP. Exp. +0.2%.
  • 10:10 German bond auction results.
  • 14:00 US FOMC member  Dennis Lockhart talks.
  • 19:00 US  Beige Book.

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

EUR/USD Sentiment

  • All wrong in Greece: After Greece’s PM Papademos said that the country will default in March without a second bailout plan, the IMF also said the country needs more aid. In addition, some IMF members have doubt that Greece has a chance to make. The Private Sector Involvement (PSI) scheme isn’t getting closer, and a German politician said the country needs a bigger haircut. Greek industrial output contracted sharply.
  • ECB awaited: Thursday’s euro-area rate decision is highly anticipated. Draghi isn’t expected to change the current policy, but given the growing distrust between banks and around the periphery, anything is possible. If Draghi doesn’t change policy, even if this is what is expected, the euro can resume its falls. See more in the ECB preview.
  • German auction reflects distrust in periphery: An early short term held earlier in the week resulted in negative yields. This means that investors are willing to take a loss just to hold German bunds – anything but the periphery.
  • Italian yields remain high: The ECB’s limited actions only keep 10 year yields from moving above 7%, but this is still too high. The technocrat PM Mario Monti said that approaching the IMF would be bad for the euro-zone’s third largest country. The echoes from a bad bond auction in which Italy  paid high prices once again  are still heard.
  • Tensions around Iran mount: US Treasury secretary Geithner is on tour in Japan and China. One of the thing on the agenda is Iranian oil. US defense forces are reportedly making plans for attacking Iran. The European Union is expected to approve an oil embargo on Tehran on January 23rd. In the meantime, a death sentence was issued for an American citizen in Iran. The potential closure of the Straight of Hormuz keeps oil prices up and depresses some potential dollar gains.
  • US Non-Farm Payrolls Encouraging: The US job market gained 200K jobs in December and the unemployment rate fell once again, to 8.5% this time. This continues the positive trend seen in US figures, but it also relies on tax incentives that expired. The big question remains open: can the US decouple from the rest of the world?
  • France and EFSF successful auctions: The euro-zone’s second largest economy had a nice bond auction. Nevertheless, this wasn’t enough to stop the drop of the euro. The EFSF bailout fund also had a successful auction. The perfect AAA credit rating of .  France might lose two notches.
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