EUR/USD July 13 – Pressured Down by Irish Downgrade

Euro dollar  is heavily pressured to the downside after Moody’s downgraded Ireland to junk. The recovery, fueled by speculation of QE3 in the US and by some hope for a magical solution seems like a temporary correction. Are we about to see the next leg downwards?

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

EUR/USD Technicals

• Asian session: A relatively quiet session saw the pair depressed under the 1.4030 line.
• Current range 1.3950 to 1.4030.

• Further levels in both directions: Below  1.3950, 1.3838, 1.3750, 1.37, 1.3570, 1.3440.
• Above:   1.4030, 1.4070 1.4160, 1.4220, 1.4282, 1.4375
• Serious support is only at 1.3750, with the most critical line awaiting at 1.3440.
• 1.4030 has a weaker role than earlier. 1.4070 is the key for a recovery.

Euro/Dollar pressured lower  – click on the graph to enlarge.

EUR/USD Fundamentals

• 6:00  German WPI. Exp. -0.3%. Actual -0.6%.
• 9:00 European  Industrial Production. Exp. +0.5%.
• 12:30 US  Import Prices. Exp. -0.7%.
• 14:00 US Federal Reserve Chairman Ben Bernanke testifies.  
• 18:00 US Federal Budget Balance. Exp. -68 billion.

* All times are GMT.

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

EUR/USD Sentiment

• Ireland joins the junk club: Moody’s downgraded Ireland by one notch to Ba1 – non grade investment, or junk status. The Emerald Isle now joins Greece and Portugal. While stating that Ireland is on track with the bailout program, the fears from of an imminent Greek default are the main reason for the downgrade. Downgrades for Spain and Italy are likely to come soon.
• QE3 Speculation: The FOMC meeting minutes have shown that some members are thinking of QE3 if necessary. This is different from the tone heard in Ben Bernanke press conference and fits with the  terrible Non-farm Payrolls  in the past two months. On the other hand, the minutes did lay out a plan for an exit strategy in detail. The chances of QE3 are still slim. EUR/USD rose on this news, but it didn’t last.
  
• Imminent default for Greece: This is less of a speculation any more. The Dutch finance minister leads the way once again with statements of an upcoming “selective default”. Apart from Jan Kees de Jager, also George Soros says it may be inevitable. This was partially priced in. It is “sell by the rumor, continue selling by more rumors” at the moment.
• Italian trouble: Italian bond yields stabilized, but the banks are still shaky. The crisis in Europe’s third largest country is still with us.
• Trichet firm on rates, defends Portugal: The ECB raised the interest rate to 1.50% as expected, and kept up the hawkish tone regarding inflation. Trichet also provided support for Portugal, in the wake of the severe downgrade from Moody’s.The rate hike is widely criticizes. It just  exacerbates the debt crisis.