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Euro dollar is holding on to low support ahead of the all-important press conference by Jean-Claude Trichet. Portugal continues to draw attention, now with a downgrade of its banks. Apart from the expected rate hike and the presser, it is a very busy day in the US. 1.40 or 1.45?

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

EUR/USD Technicals

  • Asian session: Relaxed session sees the pair trade in range, with an attempt to break lower at the wake of the European session.
  • Current range 1.4282 to 1.4375.

EUR USD Chart July 7 2011

  • 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, with 1.4375 being only minor.
  • The veteran line of 1.4282 continues to be of very high importance. A break below will open the road to 1.4160.

Euro/Dollar bounces off low support  – click on the graph to enlarge.

EUR/USD Fundamentals

  • 10:00  German Industrial Production. Exp. +0.7%.
  • 11:45 European rate decision. Expected: Hike from 1.25% to 1.50%. Will Trichet be bold enough to change his mind?
  • 12:15 ADP Non-Farm Payrolls. Exp. 67K. Important hint for the Non-Farm Payrolls.
  • 12:30 ECB press conference. Trichet’s words will be critical. See ECB preview for more.
  • 12:30 US  Unemployment Claims. Exp. 421K.

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

EUR/USD Sentiment

  • All eyes on Trichet: If the ECB will proceed as expected and raise the rates, the focus will be on his words in the press conference. A soft stance, using the words “monitor closely” will send the pair lower. A stronger stance will boost the pair. Trichet will likely be questioned about the vast holdings of Greek debt that the ECB has.
  • 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. Italian bond have passed the 5% mark. Spanish bonds are close to 5.7% once again.
  • 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?
  • Chinese hike: The Chinese authorities raised the rates once again. This was expected and had a limited impact. The bigger worry is about the state of the local authorities.
  • An improved 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. The Services PMI was weaker than expected, but the employment component was OK. Today’s ADP report for the private sector and the weekly jobless claims will provide the last hints.