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Euro dollar  remains on high ground in the day after Draghi’s calming message. A fresh Italian auction should have provided support, but the rally found its limits after hitting the clear resistance line. Some important US figures close the week. Will the pair break higher? Or is the current failed attempt to move higher a sign for an upcoming downfall?

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

EUR/USD Technicals

  • Asian session: A quiet session saw the pair trade above 1.28. A move on the 1.2873 began in the European session, but stalled.
  • Current range:  1.2760 to 1.2873.EUR/USD Chart January 13 2012
  • Further levels in both directions: Below   1.2760, 1.2663, 1.2580, 1.2520, 1.24, 1.2330 and 1.2144.
  • Above:   1.2873, 1.2945, 1.30, .13060 and 1.3145.
  • 1.2873 indeed proved itself as strong resistance
  • 1.2660 is strong support – a double bottom.

Euro/Dollar sliding after the rally- click on the graph to enlarge.

EUR/USD Fundamentals

  • 10:00 euro-zone  Trade Balance. Exp. +0.7 billion. Actual 6.1 billion.
  • 10:30 Italy raises 4.75 billion euros, as expected.
  • 13:30 US Trade Balance. Exp. -45 billion.
  • 13:30 US  Import Prices. Exp. 0%.
  • 14:55 US Consumer Sentiment. See how to trade this event with USD/JPY.
  • 16:10 US FOMC member Elizabeth Duke talks.

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

EUR/USD Sentiment

  • Draghi conveys positive message: The ECB left rates unchanged as expected. In the press conference, Mario Draghi managed to convey a message of satisfaction from the results of the huge LTRO operation. This calmed the markets and released a short squeeze that sent the pair higher.
  • Successful Italian and Spanish bond auctions: Just before the presser, Spain and Italy raised money in the markets. For a change, Italy joined Spain and enjoyed a successful auction. The is likely part of the demand towards the next LTRO operation. Banks can pledge collateral in form of sovereign debt to the ECB and receive cheap loans. They enjoy a arbitrage.
  • Weaker figures in the US: After many months of improvement in jobless claims, the US saw a setback with a rise to 399K. Also retail sales disappointed and the positive Philly Fed Index was revised to the downside. The general picture is still positive though.
  • 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.
  • French downgrade still awaited: 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. In addition,  Draghi didn’t deny a chance that the ECB would take a hit on Greek bonds.
  • 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.
  • 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.
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