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Euro dollar  is moving higher in range, after a slow start to the week. The stress tests failed to provide the required relief, and tension mounts towards the summit on Thursday. In the meantime, key indicators are released in Europe and in the US. Will the pair break out of range?

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

EUR/USD Technicals

  • Asian session: A slow session sees the pair capped by 1.4120 and cushioned by 1.4070. The move higher began in the European session.
  • Current range 1.4120 to 1.4160.EUR USD Chart July 18 2011
  • Further levels in both directions: Below  1.4120, 1.4070, 1.3950, 1.3838, 1.3750.
  • Above:   1.4160, 1.4200, 1.4282, 1.4375, 1.4450.
  • 1.4030 is a significant support line below. The other lines are minors.
  • 1.42 is a more important line on the way up, with 1.4282 being the most significant barrier.

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

EUR/USD Fundamentals

  • 9:00  German ZEW Economic Sentiment. Exp. -11.8 points.
  • 9:00 All-European ZEW Economic Sentiment. Exp. -7.4 points.
  • 12:30 US  Building Permits. Exp. 610K.
  • 12:30 US Housing Starts. Exp. 580K.

* All times are GMT.

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

EUR/USD Sentiment

  • Summit on Thursday: The European leaders will meet on Thursday in Brussels and will try to find a long term solution for Greece. Currently, there are lots of proposals and lots of confusion.  One option is allowing a Greek default, and using the bailout fund to allow Greece to perform mass buy backs of bonds.  This is the the transfer union  that many northern European countries fear
  • Unconvincing stress tests: Friday’s stress tests were too good to be true, with only 8 failures out of 90 banks. Indeed, some banks’ capital was based on assumption that they would have raised this capital, and not on existing capital. Is this serious?
  • Contagion rages: Spanish 10 year bond yields are easing to 6.17%.after closing at record highs yesterday. Italian yields for 10 year notes eased to 5.80%. These are very high levels. On the same day of the summit, Italy and Spain will test the markets with fresh bond auctions .  Are Spain and Italy up next for a credit downgrade?
  • Moody’s and S&P warn the US: As political negotiations are still far from being finalized,  two credit rating warned the US of a downgrade . This added pressures on the dollar. Maybe Bernanke can help the US avoid a default.
  • 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.