EUR/USD July 29 – Pulling Off Lows On US Deadlock

Euro dollar  managed to bounce off its lows as the political deadlock in the US continues. The euro fell and is still pressured by the rising Spanish and Italian yields. Today’s US GDP and also European inflation will provide a powerful end to the week in a busy calendar. How will the ugly contest end this week?

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

Update: Spain got a credit warning downgrade from Moody’s – EUR/USD slides again.

EUR/USD Technicals

• Asian session: Relatively quiet session saw the pair moving higher, above 1.4325.
• Current range 1.4325 to 1.4375.

• Further levels in both directions: Below  1.4375, 1.4325, 1.4282, 1.42, 1.4160, 1.41, 1.4070.
• Above:  1.4375, 1.4450, 1.4550, 1.4650, 1.47, 1.4775, 1.4882, 1.4940.
• 1.4325 is only weak support, with 1.4282 being a more important line on the downside.
• Also on the upside, 1.4375 is a limited cap, and 1.4450 is more significant.

Euro/Dollar bouncing off lows  – click on the graph to enlarge.

EUR/USD Fundamentals

• 6:00  German Retail Sales. Exp. +1.6%.
• 6:45  French Consumer Spending. Exp. +0.4%.
• 9:00 European  CPI Flash Estimate. Exp. 2.7%.
• 12:30 US GDP. Exp. +1.9%. See how to trade this event with EUR/USD.
• 12:30 US  GDP Price Index. Exp. +2%.
• 12:30 US  Employment Cost Index. Exp. +0.5%.
• 13:45 US  Chicago PMI. Exp. 60.1 points.
• 13:55 US  Consumer Sentiment. Exp. 64.1 points.

* All times are GMT.

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

EUR/USD Sentiment

• US Debt Talks still stuck. Plan B in the works: Politicians in Washington couldn’t secure a deal and the vote was postponed. It seems that a deal is getting closer, but it hasn’t materialized yet.. The current deadline of August 2nd is getting closer.There are various options for a resolving the situation. The treasury is working on a contingency plan, that will be presented after the markets close.A rating downgrade of the US is on the cards and is already priced by the markets. But on the other hand, a US default will rock the markets and send the dollar down. See  three options about how this crisis could unfold.
  
• EFSF powers limited: Despite all the  agreements, doubt about the results is beginning to appear. The EFSF (bailout fund) will probably have the powers to intervene in the bond markets only towards the end of the year. This is a very long time. German finance minister Wolfgang Schaeuble said  he is  “against a carte blanche for the euro zone’s rescue fund to purchase bonds on the secondary market”. This mechanism is the key for preventing further bailouts. Spanish and Italian bond yields refuse to drop, with Spanish yields above 6%. Italy cancelled a planned bond auction. There are worrying signs in Europe.
• US Growth?  : Also in the US, a slowdown is apparent. Weak growth was seen in Q1, and all signs point to weak growth in Q2. The first estimation of US GDP in Q2 will be published tomorrow. Here is  how to trade this event with EUR/USD.
• Doubts about the agreement: Schaeuble  joins previous worries. Is this debt relief enough for Greece? Will the plan be approved by the national parliaments?    The focus gradually returns to Europe, especially as Deutsche Bank ditches the periphery.
• Slowdown in growth and in prices: 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. This was evident in German prices. We will get fresh data from both countries today as well as all-European inflation data – a key for next week’s rate decision and press conference by Trichet.