EUR/USD July 26 Steady After ESM Remarks, Weak US Data

EUR/USD  remained steady yesterday (July 25th), after a senior member of the ECB made positive remarks about the ESM, the Euro-zone’s bailout fund. Weak US Home Sales also boosted the euro. However,  the debt crisis continues to  dominate the  headlines.  In Spain, speculation is growing that the country will require a sovereign bailout, while Greece is already falling behind on its austerity commitments. The markets will be busy digesting a host of releases on Thursday out of the Euro-zone and the US. German Consumer Climate came in as expected, but Import Prices posted its biggest drop in over three years. On Thursday, ECB President Mario Draghi will be joining BOE Governor Mervyn King at a conference in London on Thursday. In the US, there are three key releases  – Core Durable Goods Orders, Unemployment Claims and Pending Home Sales.  

EUR/USD Technicals

• Asian session: Euro/dollar was steady, consolidating at 121.53. The pair  is down slightly in the European session.
• Current range: 1.20 to 1.2144.

Further levels in both directions:    

• Below: 1.20, 1.1876 and 1.17.
• Above: 1.2144, 1.22, 1.2288, 1.2330, 1.2360, 1.24, 1.2440, 1.2520 and 1.2623.
• 1.2150, a clear historic separator is providing weak resistance.
• 1.20 has strengthened as a support level for the pair.

Euro/Dollar  steady after ESM remarks, weak US data  – click on the graph to enlarge.

EUR/USD Fundamentals

• 6:00 GfK German  Consumer  Climate. Exp.  5.9 points. Actual  5.9 points.
• 6:00 German Import Prices. Exp. -0.6%. Actual -1.5%.
• 8:00 Euro-zone M3 Money Supply. Exp. 2.9%. Actual 3.2%.
• 8:00 Italian Retail Sales. Exp. -0.1%. Actual -0.2%.
• 8:00 Euro-zone Private Loans. Exp. -0.2%. Actual -0.2%.
• 9:30 ECB President Mario Draghi Speaks.
• 12:30 US Core Durable Goods Orders. Exp. 372K.
• 12:30 US Unemployment Claims. Exp. 381K.
• 12:30 US Durable Goods Orders. Exp. 0.4%.
• 14:00 US Pending Home Sales. Exp. 0.6%. See how to trade this event with USD/JPY.
• 14:00 US Treasury Secretary Timothy Geithner Speaks.
• 14:30 US Natural Gas Storage. Exp. 26B.

EUR/USD Sentiment

• Weak German data  continues: This week’s economic releases out of Germany continue to have a negative impact on market sentiment. German Services and Manufacturing PMIs both came in below the market forecast, indicating weakness in those sectors of the economy.  This was followed  by  an awful Business Climate release, as the indicator fell below the market estimate and hit a two-year low in the process. Next, German Import Prices fell sharply, indicating less consumer activity. Is the once mighty German economy catching the Euro-zone flu? The markets are clearly getting nervous, as a Germany in decline could spell disaster for the struggling Euro-zone and send the euro tumbling.
• ESM Remarks boost Euro: The euro received a welcome boost on Wednesday, following comments from a senior member of the ECB. Ewald Nowotny, a member of the ECB Governing Council, spoke in favor of providing a banking license to the ESM, the Euro-zone’s bailout fund. Such a move would provide the ECB with more ammunition to fight the debt crisis.
• Moody’s gives Germany a thumbs-down: Earlier this week, Moody’s reduced the outlook on Germany, the Netherlands and Luxembourg from stable to negative. The highly-respected credit agency stated that Germany and other core economies will have to bear the economic burden of struggling countries such as Italy and Spain. Although Moody’s maintained Germany’s triple-A rating, this move will likely hurt investor confidence in the German economy.
• Troika scrambles to save Greek bailout: Fears of a Greek exit from the Euro-zone have again surfaced. Greece is already running into difficulty meeting its bailout obligations, such as debt-to GDP targets, and this could jeopardize the bailout funds. Germany continues to take a tough line with Greece, as German Vice Chancellor Philipp Roesler warned that Greece must adhere to austerity measures in order to receive bailout funds. Meanwhile, the troika, comprised of the European Commission, ECB and the IMF, are holding talks with the Greek government in an attempt to resolve the latest crisis. Despite these efforts, the markets are already bracing for a possible Grexit. Citigroup  has warned  there is now a 90 percent chance that Greece will leave the euro  within the  next 12 to 18 months.
• Spain bailout in trouble?: Spain is scheduled to receive some EUR 100 billion in rescue funds to bolster Spanish banks and some regional governments. However, the situation in Spain continues to worsen, and there is growing talk that a sovereign (national) bailout will be needed instead. Spain’s Treasury Minister Cristobal Montoro did  not mince any words,  warning that the recession would last into 2012, and GDP would fall by 0.5% in 2013. Spanish 10-year bonds  continue to  trade above 7.5%, which is widely considered unsustainable.
• US data continues to disappoint markets: The US continues to produce weak data, with weak US Home Sales the most recent disappointing release.  Clearly, the US road to recovery continues to be a slow and bumpy one. The markets will be watching closely as there are three key releases out of the US on Thursday, including employment data.