EUR/USD June 12 – Tests 1.33 as Euro Points Upward

EUR/USD  continues to rise slowly but surely against the US dollar. The pair has pulled above the 1.33 line, as the euro continues the rally which  began at the end of May. On Wednesday, the German Constitutional Court will wrap up hearings into the legality of the ECB bond-buying rescue program. In economic news, German Final CPI matched the forecast, while French CPI missed the estimate. Tuesday’s highlight is Eurozone Industrial Production. There are three releases in the US, including the Federal Budget Balance.

Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar.

EUR/USD Technical

• Asian session: Euro/dollar  was slightly above the 1.33 line until late in the session, when the pair dropped to a low of 1.3293. Euro/dollar  then moved back up, and consolidated at 1.3307. In the European session, the pair is trading at 1.3290.

Current range: 1.3255 – 1.3306.

Further levels in both directions:

• Below: 1.3255, 1.32, 1.3160, 1.31, 1.3050, 1.30, 1.2940, 1.2890, 1.2840, 1.28, 1.2750  and  1.27.
• Above: 1.3306, 1.3350, 1.34, 1.3480, 1.3580  and  1.3710.
• 1.3255 is providing weak support.  This is followed by the round number of 1.32.
• On the upside, the pair is testing 1.3306. 1.3350 is stronger.

Euro  edges higher, testing resistance  at 1.3306  – click on the graph to enlarge.

EUR/USD Fundamentals

• Day  2 – German Constitutional Court Ruling.
• 5:30 French Final Non-Farm Payrolls. Exp. -0.1%. Actual -0.1%.
• 6:00 German Final CPI. Exp. 0.4%. Actual 0.4%.
• 6:45 French CPI. Exp. 0.3%. Actual 0.1%.
• 9:00 Eurozone Industrial Production. Exp. -0.2%.
• 14:30 US Crude Oil Inventories. Exp. -1.4M.
• 17:00 US 10-year Bond Auction.
• 18:00 US Federal Budget Balance. Exp. -110.2B.

For more events and lines, see the  Euro to dollar forecast

EUR/USD Sentiment

• OMT in Geman court docket: On Wednesday, the German Constitutional Court wraps up a hearing  on the ECB’s OMT (Outright Monetary Transactions) program on Tuesday. OMT is a rescue program which enables the ECB to buy bonds from Eurozone members whose economies are struggling. It’s turned into a case between the ECB and the German Bundesbank, as the ECB board member Joerg Asmussen defended the program in front of the court, while Jens Weidmann, head of  the Bundesbank, attacked the  OMT. It should be noted that the ECB  has never purchased any  bonds under the scheme.  What can we expect from the Court? In previous cases involving the legality  of ECB rescue packages, the German court has given its approval, but has not hesitated to add conditions. So we can expect the court to give the nod to OMT, although there could some strings attached. A ruling in the matter is not expected  until September, after German  elections.
• US earns upgrade from S&P: The S&P ratings agency revised its US rating from negative to stable, which means that another downgrade in the next two years has less than a 33% chance  of occurring. The agency said that a key factor in its decision was the agreement reached in Congress to avoid the fiscal cliff, which would have resulted in $600 billion in tax increases and spending cuts, and could have pushed the US economy into recession. Back in 2011, S&P cut the US credit rating from AAA to AA, and the threat of another downgrade has been hanging over the markets since then. So this development  will  improve market sentiment and could give a boost to the US dollar.
• Markets Eye US Releases: The markets haven’t had a chance to analyze any US major releases so far this week, but that will change on Thursday, as the US releases three key events   – Core Retail   Sales, Retail Sales and Unemployment Claims. Each of these indicators is a market-mover, so we could see some sharp movement from EUR/USD tomorrow. If the releases are solid, we will likely see more speculation as to whether the Fed will taper with the current QE scheme, which stands at $85 billion in asset purchases each month. The Fed has stated that it wants to see a stronger recovery before ending the program.
• IMF admits mistakes in Greek bailout: In an interesting development, the IMF admitted mishandling the Greek bailout program, in which Greece received 240 billion  euros. The IMF said  it failed to deal with private debt restructuring  properly and overestimated the capacity of Greek governments  to push through tough economic reforms. The IMF also pointed fingers at the EU for “notable mistakes”. For its part, Greece said that the IMF report would not lead to any changes as the country continues to work towards meeting its deficit reduction targets under the bailout program.