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Euro dollar  is slipping from high range, after finding limits for the rally. Strong German indicators and a yet another positive bond auction in Spain certainly help. On the other hand, the growing chance of a Greek default, the deterioration of Portugal and a new threat on Italy all weigh heavily on the common currency.

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

EUR/USD Technicals

  • Asian session: An active session saw a fresh move higher, eventually finding a limit at 1.2808.
  • Current range:  1.2660 – 1.2760.EUR/USD Chart January 18 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, 1.2808, 1.2873, 1.2945, 1.30, .13060 and 1.3145.
  • 1.2808 emerges as a double top, capping moves to higher ground.
  • 1.2660 returns to support after being a double bottom. Really strong support is at 1.2587.

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

EUR/USD Fundamentals

  • 10:30 German bond auction. Will it yield negative yields again?
  • 10:40 Portuguese bond auction.
  • 13:30 US PPI. Exp. +0.1%. Core PPI exp. +0.1%.
  • 14:00 US  TIC Long-Term Purchases. Exp. 27.3 billion.
  • 14:15 US  Industrial Production. Exp. +0.5%.
  • 14:15 US  Capacity Utilization Rate. Exp. 78.2%.
  • 14:30 US FOMC member Daniel  Tarullo talks.
  • 15:00 US  NAHB Housing Market Index. Exp. 22 points.

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

EUR/USD Sentiment

  • Portugal deteriorates: The biggest victim of the multiple S&P downgrades is Portugal, which saw its yields leap. The chances of a default there are rising. The bond auction today will be closely watched. The downgrade of the bailout fund (EFSF) hasn’t hurt its bond auction. Also France, which got the historic downgrade, survived it quite well.
  • 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.
  • German hope: Apart from getting negative yields on bond auction, the ZEW Economic Sentiment jumped. While it still shows pessimism, there is a huge improvement in this usually gloomy indicator.
  • 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.
  • 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.
  • Strong US figures once again: The Empire State Manufacturing Index exceeded expectations and raises expectations for the more important Philly Fed Index. On the other hand, after many months of improvement in jobless claims, the US saw a setback with a rise to 399K.
  • Tensions around Iran remain high: 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.