EUR/USD July 6 – Losing Support on Contagious Debt

Euro dollar is now below support, extending the falls that started with the downgrade of Portugal. Concerns over Greece, Ireland, and even Italy and Spain continue to weigh on the common currency ahead of the expected rate hike. Where will this stop?

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

EUR/USD Technicals

• Asian session: Quiet session saw the pair trade below the 1.4450 line, but hold on to 1.4375. The break lower came in the European session,.
• Current range 1.4282 to 1.4375.

• Further levels in both directions: Below  1.4282, 1.4220, 1.4160, 1.4120, 1.4030, 1.3950,
• Above:   1.4375, 1.4450, 1.4550,1.4650, 1.47, 1.4775, 1.4882.
• 1.4450 is significant resistance above
• The loss of 1.4375 opens the road to 1.4282, which is a historic line. All in all, the pair is still in a wide range.

Euro/Dollar in lower end of the range  – click on the graph to enlarge.

EUR/USD Fundamentals

• 9:00 Final European GDP. Exp. +0.8%. These figures are usually left unchanged.
• 10:00  German Factory Orders. Exp. -0.5%.
• 11:30 US  Challenger Job Cuts.
• 14:00 US  ISM Non-Manufacturing PMI. Exp. 53.9 points. This is a critical figure towards the NFP.

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

EUR/USD Sentiment

• Contagion: Moody’s downgraded Portugal by a painful 4 notches. This triggered a sell off. Ireland seeks changes in terms. Economist Nouriel Roubini warned that Italy and Spain will lose access to the markets. Spain’s 10 year note yields are on the rise again, now at 5.57%.
• Greeks continue withdrawing money from banks: Greek banks continue to struggle. Also in June, the citizens continued withdrawing money. Read more about the Greek bank run. It now intensified.
• Selective default for Greece: Rating agency S&P reasoned quite logically that the “volunteering” of German and French banks to “contribute” wasn’t genuinely out of free will. This means that Greece will be at a state of selective default, keeping it away from the markets for a longer time, and putting the ECB in a tight spot regarding its massive holding of Greek debt. Is it already priced in?
• Trichet set to hike, but what will he hint? The ECB will likely raise the rates despite weaker data, including weaker inflation. The big question is his hint towards the next move. It depends on specific code words that he will use. See the ECB Preview for details on this big event that awaits the euro on Thursday.
• Chinese worries: After a weak Manufacturing PMI last week, worries are intensifying from the economic giant, especially around the huge debt pile that sits on municipalities, and inflation which is hardly in control. The pile of debt is probably larger than expected.
• A good Non-Farm Payrolls? The event that will close the week is the release of NFP in the US. A first good sign came from the manufacturing sector. US ISM Manufacturing PMI came out better than expected, and this is encouraging. Today’s Services PMI is much more important.