EUR/USD rose yesterday (June 13th), following weak PPI and Retail Sales releases out of the US. Analysts and traders will be keeping a close watch as events unfold in in Greece and Spain. The second round of the Greek election will be held on Sunday, and the outcome could determine whether Greece remains in the Euro-zone. The bailout for Spain may be a done deal, but uncertainty remains as details of the package are unclear. In Italy, another bond auction is scheduled for today. Other key releases include US CPI and Unemployment Claims.
Here’s an update on technicals, fundamentals and what’s going on in the markets.
EUR/USD Technicals
- Asian session: EUR/USD moved upwards, reaching a high of 1.2588, and then consolidated at 1.2561. The pair has been choppy in the European session, and was trading at 1.2554.
- Current range: 1.2540 to 1.2587.
- Further levels in both directions: Below: 1.2540, 1.2460, 1.24, 1.2330, 1.22, 1.2144, 1.20, 1.1876 and 1.17.
- Above: 1.2587, 1.2623, 1.2660, 1.2760, 1.2814 and 1.2873.
- The failure of the pair to hold above the all important line of 1.2624 is a worrying sign for euro bulls.
- 1.2540 is providing weak support.
- 1.2587 is the next resistance line, but 1.2623 is much stronger.
Euro/Dollar moves up after weak US data – click on the graph to enlarge.
EUR/USD Fundamentals
- 6:00 German WPI. Exp. -0.4%. Actual -0.7%.
- 8:00 ECB Monthly Bulletin.
- 9:00 Euro-zone CPI. Exp. +2.4%. Actual +2.4%.
- 9:00 Euro-zone Core CPI. Exp. +1.7%. Actual +1.6%.
- 12:30 US Core CPI. Exp. +0.2%.
- 12:30 US Unemployment Claims. Exp. 377K. See how to trade this event with USD/JPY.
- 12:30 US CPI. Exp. -0.2%.
- 12:30 US Core PPI. Exp. +0.2%.
- 14:00 US Current Account. Exp. -132B.
- 14:30 US Natural Gas Storage. Exp. +55B.
- 17:00 US 30-y Bond Auction.
For more events and lines, see the Euro to dollar forecast
EUR/USD Sentiment
- Market excitement diminishes over Spanish bailout: After weeks of rumors, the Eurogroup announced a commitment to support Spanish banks by up to 100 billion euros. However, the precise amount of the bailout package will be determined after the results of independent banking audits are published later this month.There are 8 holes in the Spanish bailout, including the eventual sum of money, the sources and impacts on other countries, including Greece. The initial market optimism has slowly drifted away, yet the Sunday gap is still open. So far, the powerful ECB has refused to get involved and provide help. To further complicate matters, earlier this week the Fitch ratings agency downgraded the credit rating of Spain’s two largest international banks, Banco Santander and Banco Bilbao Vizcaya Argentaria. Look for Spain and its money woes to continue to dominate the financial headlines.
- Weekend Elections in Greece: Greece will be starring in Sunday’s game of the week, but we’re referring to the second round of Greek elections, not the Euro 2012 Soccer Tournament. The election results could well determine whether the country remains in the Euro-zone, and the results may also have a significant impact on world currency markets. However, given the faltering Greek economy, it may not matter who forms the next government. A third bailout for Greece could leave it in the EZ, but an exit is looking more and more certain. Greek pharmacies are unable to supply subsidized drugs, money is being taken out of the banks and the bigger problem is with tax payments: many Greeks are deferring tax payments and this weighs heavily on the state coffers, which are running dry. With Greece mired in deep political and financial crises, winning the election may prove to be much easier than running the country. See how to trade the Grexit with EUR/USD.
- More Bailouts Coming?: Spain is just the latest Euro-zone country to receive a bailout. Portugal, Ireland and Greece are all on bailout programs, and all three will have trouble raising any funds on the international bond markets. Cyprus has a large exposure to Greek debt, and could be the next EZ member to join the bailout bandwagon. Italy is also in fiscal trouble, and could join the list.
- Dark Clouds Over Italy: With the third largest economy in the EZ, what happens in Italy is of great importance to the entire zone. Its debt to GDP ratio is much higher than that of Spain. Italy’s GDP declined by 0.8% in Q1, underlining concerns that Italy might need outside help. The markets may be focused on the crisis in Spain , but clearly Italy cannot hide behind Spain for too long. Italy was due to auction up to EUR4.5 billion of government bonds later Thursday The yield on Italian 10-y bonds is already up to 6.3%, which could spell fiscal trouble ahead. There are growing fears that it may just be a matter of time before the country require a bailout.
- US recovery stalling?: Recent US data has been weak, fuelling concerns that the economic recovery is faltering. The Federal Budget recorded a larger deficit than forecast, and Retail Sales and PPI both were disappointments. and Retail Sales posted their first back-to-back decline in two years. As well, PPI suffered its sharpest drop since 2009. Will we see further data pointing to an economic downturn? A US economy in trouble together with the crises in the Euro-zone could exacerbate the global slowdown.
- Little Likelihood of QE3: Fed Chairman Bernanke disappointed the markets with no hints about QE3. As always, he left the door open for any policy, and also mentioned a low risk of deflation. Nevertheless, his talk about a stabilizing housing market and diminishing returns for QE3, lowers the chances for action on June 20th, unless European troubles hit US shores in a horrible manner, but this is still to be seen.
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