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Euro dollar  is making another push upwards, but yet again, it is limited to a range. Although expectations have been lowered, the European summit tomorrow causes tension which limits the pair. When will it burst?  

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

EUR/USD Technicals

  • Asian session: A very quiet session sees the pair trade around 1.4160, and stay in the 1.4120 to 1.42 range.
  • Current range 1.4160 to 1.42.EUR USD Chart July 20 2011
  • Further levels in both directions: Below  1.4160, 1.4120, 1.4070, 1.3950, 1.3838, 1.3750.
  • Above:   1.4200, 1.4282, 1.4375, 1.4450, 1.4550.
  • 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

* All times are GMT.

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

EUR/USD Sentiment

  • US debt deal hopes: The bipartisan “Gang of 6” has made huge progress in reaching a political deal that will allow the US to shrink the deficit and the debt ceiling to be raised. If this is finalized, it would take one problem off of the US, and would help the dollar.
  • Less hopes for the summit: The European leaders will meet tomorrow 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.
  • QE in the Euro-zone: One solution that has less barriers and can bring immediate relief to the markets is that Trichet will go to the printing presses, and buy sovereign debt en masse.  This would ease the pressure in the bond markets and would allow some growth.
  • 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 too comfortable above 6%. Italian yields for 10 year notes eased to 5.80%. These are very high levels. Spain already paid a higher price for 12 and 18 month debt it issued this week. On the same day of the summit, Italy and Spain will test the markets with fresh bond auctions, with Spain issuing 10 year notes .  Are Spain and Italy up next for a credit downgrade?

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