Search ForexCrunch

Euro dollar  is awaiting the European Central Bank at low range, after the warning from Fitch sent it down, but not below critical support. Spanish and Italian bond auctions precede Draghi’s decision and will show if ECB QE is necessary. In addition, the US calender is very busy today. Will Draghi open the road for another leg down or for a recovery.

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

EUR/USD Technicals

  • Asian session: The pair retraced some of its losses and recovered in range.
  • Current range:  1.2663 to 1.2760.EUR/USD Chart January 12 2012
  • Further levels in both directions: Below   1.2663, 1.2580, 1.2520, 1.24, 1.2330 and 1.2144.
  • Above:   1.2760, 1.2873, 1.2945, 1.30, .13060 and 1.3145.
  • 1.2760 is relatively weak resistance. 1.2873 is much more serious.
  • After 1.2663 was challenged once, 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

  • 6:30  French CPI. Exp. +0.2%. Actual +0.4%.
  • 7:00  German Final CPI. Exp. +0.7%. Actual +0.7%.
  • 9:30 Spanish medium term bond auction results.
  • 10:00 Italian short term auctions results.
  • 10:00 Euro-zone  Industrial Production. Exp. -0.2%. See how to trade this event with EUR/USD.
  • 12:45 Euro-zone rate decision. No change is expected.
  • 13:30 ECB Press Conference. Draghi isn’t expected to announce any new measures. See the ECB Preview.
  • 13:30 US  Retail Sales. Exp. +0.3%. Core exp. +0.3%.
  • 13:30 US jobless claims. Exp. 373K.
  • 15:00 US  Business Inventories. Exp. +0.4%.
  • 19:00 US  Federal Budget Balance. Exp. -80 billion.

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

EUR/USD Sentiment

  • ECB awaited: The 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. The previous meeting saw a rate cut and the announcement of the cheap 3 year loans to banks.
  • Fitch warns: While S&P may downgrade France any day now, another rating agency rocked the euro. Fitch said that without intensive action from the European Central Bank, the euro is bracing itself for a “cataclysmic” fall.
  • Rumors about a French downgrade: A rumor about a downgrade for France proved false, but danger is still here. The euro-zone’s second largest economy had a nice bond auction. Nevertheless, this pushed the euro down.  France might lose two notches.
  • 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.
  • 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 in relatively good state: 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?