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EUR/USD  continues to struggle  around the fresh two year lows it plunged to on Friday, trading close to the 1.23 line.  Euro-zone finance ministers met on Monday to  discuss implementing decisions made at the EU Summit. However, aside from extending Spain’s deadline to reach its deficit  targets, little progress was reported. The Finance Ministers will  be meeting again today.  In economic releases, French Industrial Production looked awful, but the Italian Industrial Production was well above the market forecast.  

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

EUR/USD Technicals

  • Asian session: Euro/dollar was quiet,  edging to a low of    1.2282.  The pair consolidated at 1.2290. In the European session, the pair has moved upwards, trading at 1.2325.
  • Current range: 1.2288 to 1.2330.

  • Further levels in both directions:
  • Below: 1.2288, 1.22, 1.2150, 1.20 and 1.1876.
  • Above: 1.2330, 1.2360, 1.24, 1.2440, 1.2520 and 1.2624.
  • 1.2330 is the next serious resistance, and could be tested by the pair.
  • 1.22 is only a minor line before the clear historic separator of 1.2150.

Euro/Dollar around two-year lows after rate cut, NFP – click on the graph to enlarge.

EUR/USD Fundamentals

  • All  day: Euro-zone  Finance Ministers  Meeting
  • 6:45  French Industrial    Production. Exp. -0.9%. Actual: -1.9%.
  • 8:00 Italian Industrial Production. Exp. -0.3%. Actual +0.8%.
  • 14:00 US IBD/TIPP Economic Optimism. Exp. 46.9 points.

For more events and lines, see the Euro to dollar forecast

EUR/USD Sentiment

  • Euro-Zone bickering continues: Following the euphoria at last week’s EU Summit, it didnt’ take long for the mood  to sour. After Finland hinted about leaving the euro-zone  (and denied later on), Italy’s PM Mario Monti blamed northern countries for causing tensions and raising funding costs. In Germany, support for bailouts is falling and Germany’s president demanded to receive the secret agreements reached at the EU Summit.
  • Slow Progress  at Eurogroup meeting: The Eurogroup meeting of finance ministers was supposed to implement the decisions agreed to at the EU Summit. The finance ministers agreed to  extend Spain’s deadline to reach  budget targets to 2014, and set the parameters  of the bailout package  for Spanish banks. So far, however,  no agreement has been reached on using rescue funds to intervene in bond markets and lower Spain and Italy’s borrowing costs,which are threatening to spiral out of control. The holes in the EU Summit statement are surfacing. A banking union could take a year to put in place, the Netherlands and Finland oppose direct bond buying, and  Greece is also demanding    to renegotiate the bailout terms.
  • ECB cuts benchmark and deposit rate: Last week, the European Central Bank cut  its benchmark lending rate to a new historic low of 0.75% and also eliminated the deposit rate from the previous 0.25%. The move came after more QE from the UK and a rate cut from China. The impact on the euro from these moves by central banks was quite negative: a drop of over 100 pips in a short time. Draghi added fuel to the fire  by saying that downside risks have materialized.  He called the ESF  unusable and stated that  ESM is  the preferred mechanism  for relief funds.
  • Weak  US employment data: The US gained 80K jobs, a bit under expectations. The unemployment rate remained unchanged at 8.2%. The US economy is growing slow enough to maintain the global gloom, but not slow enough to trigger QE3 – a favorable situation for the US dollar. Indeed, the greenback is enjoying a good run against most of the major currencies, including the euro and the pound.
  • Spain’s troubles continue: Spanish yields are on the rise once again and  have crossed the dangerous  7%, line,  after yet another bad bond auction. The 8 holes in the aid package are causing quite a lot of trouble.  The government wants to cut another 30 billion euros in order to satisfy markets, but this isn’t applauded, to say the least.
  • Italian bailout next?: Italian PM Mario Monti has asked for help from Germany and the ECB as the situation worsens. The Euro-zone’s third largest economy is suffering from a problematic banking system, and GBP is contracting.  This may explode later on. Here is more about a potential Italian bailout.
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