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Euro dollar  is trading at the higher range it reached after the news about the agreement broke out. The markets are still awaiting words from rating agencies. In the meantime, more signs of German slowdown appear, and the pair capped by long term downtrend resistance. Will it manage to further enjoy the decision and break higher? Or are set for a weaker close?  

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 after the big storm saw the pair trading in the 1.4375 to 1.4450 range.
  • Current range 1.4375 to 1.1450.EUR USD Chart  July 22 2011
  • Further levels in both directions: Below  1.4375, 1.4282, 1.42, 1.4160, 1.4120, 1.4070, 1.3950.
  • Above:    1.4450, 1.4550, 1.4650, 1.47, 1.4775.
  • 1.4450 is not only a resistance line, but also the area where long term downtrend resistance caps the pair. On the daily chart, 1.4446 is the precise point where May’s peak at 1.4940 follows the 1.4575 mini-peak from the beginning of July and hits the charts.
  • At current levels, the historic 1.4282 is of importance.

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

EUR/USD Fundamentals

  • 8:00  German Ifo Business Climate. Exp. 113.7 points. Actual 112.9. This indicator is usually better than expected. This time it disappoints.
  • 9:00 European  Industrial New Orders. Exp. +0.7%.

* All times are GMT.

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

EUR/USD Sentiment

  • A big step in Europe: The leaders of the EU took big steps towards a full monetary union. The loans will be of longer maturities, the interest rates will be lower, and the bailout fund will be able to intervene in the markets and buy bonds – avoiding a bailout ahead of time. A European version of the IMF is also underway. Regarding the new package for Greece, it includes significant private sector participation. The EU is ready to accept that the rating agencies will declare a credit event that will trigger CDS. We have yet to hear from them, but this is clearly the long awaited Greek default. The Euro reacted with a huge rise after the news broke out. See more about the press conference that followed the summit.
  • Slowdown: It is not only peripheral countries that are struggling. Also Germany and France have reported a significant slowdown in activity, in both manufacturing and services sectors. And today, the wide IFO survey, that is usually positive, points to a soft landing for Germany.
  • 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.
  • 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?
  • Yields calm down: Spanish 10 year bond yields are coming back to normal. After a big plunge yesterday, they continue lower and touch the 5.6%, the peak of the previous level. They need to get below this line in order to declare a full return to normality. Italian 10 year note yields are also sharply down to 5.2% . The chance of a  rating downgrade for both countries  is now lower.
  • US unemployment still problematic: Recent figures in the US, including the weekly jobless claims and the Philly Fed index are stable, but not encouraging enough.