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Euro dollar  started the new week with a slide, within the rising channel. The PSI deal is still close but not done. The results of the deal may not necessarily positive, and may weigh on the next domino: Portugal. Leaders meet in Europe once again to find a way forward, and the US starts releasing indicators in a busy week that culminates in the Non-Farm Payrolls.

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

EUR/USD Technicals

  • Asian session: Very active session sees the pair falling gradually off the highs. The drop continues in the European session.
  • Current range:  1.3060 to 1.3145EUR/USD Chart January 30 2012
  • Further levels in both directions: Below   1.3060, 1.30, 1.2945, 1.2873, 1.2760, 1.2660 and 1.2623
  • Above:   1.3145, 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 despite a temporary breach.

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

EUR/USD Fundamentals

  • German CPI. Exp. -0.4%.
  • 10:00 Euro-zone economic sentiment. Exp. 93.8. Actual 93.8 points.
  • 10:10 Italian long term auction results.
  • 13:30 US  Personal Spending. Exp. +0.2%.
  • 13:30 US Personal Income. Exp. +0.4%.
  • 13:30  Core PCE Price Index. Exp. +0.1%.

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

EUR/USD Sentiment

  • Greek haircut deal closer?: It always seems close, yet elusive. The sides are reportedly discussing only technical details.. It’s important to note that German Chancellor Angela Merkel has doubts if Greece can avoid a default. Contrary to some earlier thoughts, Greece will certainly be on the agenda of the European Economic Summit held today.
  • 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, especially if a PSI deal is signed in Greece and especially if also the ECB takes a hit.
  • Irish  Referendum?: In the past, important decisions concerning Europe were brought to the people to decide. There is a growing demand in Ireland to hold such a referendum on the new fiscal compact. This may delay the implementation and wreck the “achievements” of the December EU summit.
  • 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.
  • US Economy still growing, but slowly: The first estimate for Q4 disappointed with a lower-than-expected headline figure, 2.8% and weak underlying components. This fuels expectations for QE3.
  • 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.
  • 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 and the pressure on the greenback will remain in weeks to come.