EUR/USD jumped after the markets reacted positively to remarks by the head of the ECB yesterday (July 26th). Mario Draghi declared he would do everything in his power to save the euro. US releases were mixed, as Unemployment Claims came in well below the market estimate. However, Core Durable Goods Orders and Pending Home Sales were both weak. The Spanish Unemployment Rate inched up to 24.6%, and US Advance GDP will be released later on Friday, as we end the trading week.
- Asian session: Euro/dollar pushed above the 1.23 line, but then retraced., The pair has moved down in the European session.
- Current range: 1.22 to 1.2288.
- Below: 1.22, 1.2144, 1.20, 1.1876 and 1.17.
- Above: 1.2288, 1.2330, 1.2360, 1.24, 1.2440, 1.2520 and 1.2623.
- 1.2150, a clear historic separator, is again providing support.
- 1.2288 is a weak line of resistance, with stronger resistance at 1.2330.
Euro/Dollar climbs after Draghi remarks – click on the graph to enlarge.
- All Day: German Preliminary CPI. Exp. +0.4%.
3:00 Spanish Unemployment Rate. Exp. 24.6%. Actual 24.7%.
8:30 US Advance GDP. Exp. +1.5%
8:30 US Advance GDP Price Index. Exp. +1.6%
9:55 Revised UoM Consumer Sentiment. Exp. 72 points.
9:55 Revised UoM Inflation Expectations.
- Draghi backs up euro: ECB head Mario Draghi, often criticized for not being more aggressive in tackling the debt crisis, was the darling of the markets as he promised to do “whatever it takes to preserve the euro”. He also hinted that the ECB might take action to curb Spanish and Italian bond yields, which are spiralling out of control and threaten to destabilize the Spanish and Italian economies. Traders should be careful about the market euphoria, as there is good reason to be cautious, if not skeptical about what steps the ECB is prepared to take in to tackle the crippling debt crisis affecting the Euro-zone.
- ESM to the rescue?: The euro received a welcome boost earlier in the week, 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.
- German data disappoints: This week’s economic releases out of Germany had a major 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
- 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.
- Weak US data worries markets: The US continues to produce weak data, with housing data and durable goods posting weak numbers. On the bright side, Unemployment Claims beat the market estimate. Clearly, the US road to recovery continues to be a slow and bumpy one. Will the Fed step in and provide some stimulus to the sputtering US economy?