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Euro dollar  ran higher after China reported that its economy grew at a strong pace. The euro defied all the bad news about an upcoming Greek default and the downgrade of the EFSF. Will this rally last, or is this a short squeeze? An important German survey looms as US markets return to normal.

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

EUR/USD Technicals

  • Asian session: A very active session saw the pair conquer the 1.2760 line and return to higher range.
  • Current range:  1.2660 to 1.2760.EUR/USD Chart January 17 2012
  • Further levels in both directions: Below   1.2660, 1.2623, 1.2580, 1.2520, 1.24, 1.2330 and 1.2144.
  • Above:   1.2760, 1.2873, 1.2945, 1.30, .13060 and 1.3145.
  • 1.2660 returns to support after being a double bottom. Really strong support is at 1.2587.
  • 1.2760 is only a pivotal line in the current range. Stronger resistance is at 1.2873.

Euro/Dollar in low ground- click on the graph to enlarge.

EUR/USD Fundamentals

  • 10:00  German ZEW Economic Sentiment. Exp. -49.7 points. See how to trade this event with EUR/USD.
  • 10:00 Euro-zone ZEW Economic Sentiment. Exp. -48.7 points.
  • 10:00 Euro-zone  CPI. Exp. +2.8%. Core exp. +1.6%.
  • 13:30 US  Empire State Manufacturing Index. Exp. 10.8 points.

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

EUR/USD Sentiment

  • Chinese growth: The economic giant grew at a pace of 8.9% (annually) in Q4 according to its quick figures. This was the match that sparked a short-squeeze rally in EUR/USD.
  • Greece deteriorates: Partially overshadowed by the downgrades, the situation in Greece worsened in two aspects: the talks about a 50% private sector haircut for Greek bonds broke down – this is a key element for Greece’s second bailout program. In addition, a fresh report about Greek banks showed a shortfall of 15 billion euros,  worse than estimated.  These events aren’t fully priced in.
  • Downgrade also for the EFSF:  S&P finally made the move. The rating agency cut credit ratings of 9 euro-zone countries, stripping the perfect AAA rating from Europe’s second largest economy, France, and Austria, which was also part of the AAA core for the bailout fund. Indeed, a downgrade of the bailout fund, EFSF, followed. Italy’s two notch downgrade sent it closer to junk status.
  • Draghi warns about Greece: The president of the ECB has another role, as the head of the stability body. He warned that little progress was made since the decisions about PSI in October. This is a different tone than the calming one heard at the ECB press conference.
  • US Holiday Ends: Volume returns to normal, and volatility woke up even before that, as US markets return from Martin Luther King Day.
  • 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.
  • 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.
  • US asks Israel not to act in Iran: According to reports, the US is asking Israel not to act alone against Iran’s nuclear program. Tensions are already high around the Straights of Hormuz, as Europe moves slowly towards an oil embargo on Iran.
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