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Euro dollar  couldn’t break above uptrend resistance and is now settling in range. The euphoria that followed Bernanke’s moves faded away. The situation around Greece remains tense – a deal on Private Sector Involvement is always close, but it isn’t sealed. Also the ECB’s role is still to be seen. Today we get the initial assessment about the US economy’s performance in Q4 and we’ll see how good the situation really is. This exciting week is set to end with a storm.

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

EUR/USD Technicals

  • Asian session: Relaxed session sees the pair stabilize around 1.31, in the middle of the range and the channel.
  • Current range:  1.3060 to 1.3130.EUR/USD Chart January 27 2012
  • Further levels in both directions: Below   1.3060, 1.30, 1.2945, 1.2873, 1.2760, 1.2660 and 1.2623
  • Above:   1.3130, 1.3212, 1.3280, 1.3333, 1.3450 and 1.3550.
  • Note the uptrend channel on the hourly chart. The pair is  now in the middle of the range, after failing to break higher.
  • 1.3060 is a clear line that separates ranges.
  • 1.3212 is strong on the upside.

Euro/Dollar in range before Bernanke- click on the graph to enlarge.

EUR/USD Fundamentals

  • 7:00  German Import Prices. Exp. +0.3%.
  • 9:00 Euro-zone  M3 Money Supply. Exp. 2.2%. Actual 1.6%.
  • 10:15 Italian short term bond auction results.
  • 13:15 ECB president Mario Draghi talks.
  • 13:30 US GDP (first release for Q4 2011. Exp. 3.1%. See how to trade this event with EUR/USD.
  • 13:30 US  GDP Price Index. Exp. 2%.
  • 14:55 US Consumer Sentiment (revised. Exp. 74.2 points.
  • 15:00 US FOMC member William Dudley talks. Dovish sentiment expected.

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

EUR/USD Sentiment

  • How good is the US economy doing?: The first estimate for Q4 holds high hopes. Note that the Fed also looks at employment and the housing sector in its possible QE3 decision.
  • Greek haircut deal closer?: It always seems close, yet elusive. A new report says that the banks (through the IIF) now agree to a lower interest rate. This comes after the EU finance ministers rejected a previous “final” offer by the banks. This helps the euro. The drama over PSI is going on for a quite a while. It’s important to note that German Chancellor Angela Merkel has doubts if Greece can avoid a default.
  • Fed Extends Zero Rate Policy:  The FOMC Statement contained one significant change: the  low rates are now likely to remain until late 2014, instead of mid 2013 stated earlier. Together with a hint by Bernanke that QE3 is still open, the dollar fell. On the other hand, the  Fed announced an explicit inflation target: 2%.  This may sound tight and it initially helped the dollar, but Bernanke then clarified the flexibility of this target. All in all, this rate decision boosted stocks, commodities and all currencies except the US dollar.
  • ECB Pressured to take a haircut?: There is growing pressure that the ECB will join private bondholders and accept a haircut on its Greek bonds. The pressure comes from the banks (naturally) and also from the IMF. Note that ECB president  Draghi didn’t categorically reject this. EU finance ministers say that Greece is off track and must make reforms and secure PSI as soon as possible. This joins reports say that the EU and the IMF  request  a new report on debt sustainability, while a report on Germany’s Bild Zeitung  says  that these international creditors are “shaken” by the state of administration in the Hellenic  Republic.
  • German strength: The GfK report joined ZEW and the  highly important IFO results  in showing that Germany’s economy is strong and confident. Will it be enough to pull the whole zone forward?
  • Italy joins Spain in bond relief: Italy was lagging behind Spain in bond auction and yields. Spain raised more money than expected while Italy continued paying high prices. Italy is now catching up, with an impressive improvement, especially on the short end of the curve. The LTRO of the ECB certainly plays a big role.
  • 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.