EUR/USD June 16 – Falls Continue On Crisis Complications

Euro dollar continues downhill and shifts to a lower range as the formation of a new Greek government is delayed, Spanish yields break to new levels, inflation is weaker than expected and more. More important US figures are out today . Here’s a quick update on technicals, fundamentals and what’s going on in the markets.

EUR/USD Technicals

• Asian session: A rather quiet session saw the pair consolidate its drops above the 1.4160 level. This was eventually broken and the pair is now lower
• Current range 1.4030 to 1.4160

• Further levels in both directions: Below 1.4030, 1.3950, 1.3860, 1.3750, 1.3440.
• Above:   1.4160, 1.4282, 1.4375, 1.4450, 1.4550 and 1.4650.
• Critical support is at 1.4030 above the round number of 1.40. Another strong line is 1.3950.
• 1.4160 now turns into resistance.

Euro/Dollar free falling  – click on the graph to enlarge.

EUR/USD Fundamentals

• 9:00 European CPI. Exp. 2.7%. Actual 2.7%. Core exp. 1.6%. Actual, only 1.5%. No second round effects?
• 9:00 European  Employment Change. Exp. +0.2%.
• 12:30 US  Unemployment Claims. Exp. 421K.
• 12:20 US Building Permits. Exp. 550K.
• 12:30 US Housing Starts. Exp. 540K.
• 12:30 US  Current Account. Exp. -126 billion.
• 14:00 US  Philly Fed Manufacturing Index. Exp. 7.1 points. See how to trade this event with EUR/USD.

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

EUR/USD Sentiment

• Greek awaiting new government: The Prime Minister of Greece said he would reshuffle his government in order to tackle the riots and the upcoming default. He got no support from the opposition and has trouble in his party as well.

• Contagion risks in Ireland: The Irish finance minister said that he wants burden sharing for senior bondholders of Irish banks following the German suggestion for Greece. This means trouble.
• Contagion risks in Spain: Spanish bond yields broke above the critical 5.6% level, and reached a euro-area high of 5.65%. This is not only due to Greek contagion, but also to the fear that there is a lot of hidden debt in Spain.
• European leaders still split: The Dutch member of the ECB, Wellink, suggested to double the bailout fund. This doesn’t help the euro. The emergency meeting of Euro-zone finance ministers in Brussels failed to reach an agreement as the rift between the ECB and Germany continues. Another meeting is scheduled for next week.
• Warning for French banks over Greece: 4 large French banks were put on review by Moody’s for downgrade due to Greek exposure. According to another rating agency, S&P, Greece has the lowest credit rating in the whole world, CCC.
• Greek strike: A 24 hours general strike has been announced in Greece as a protest against the austerity measures. In addition, one member of the ruling party quit, narrowing the majority of the government.
• German banks ready to contribute: Over the weekend, it seems that pressure for restructuring of Greek debt pushed the German banks to volunteer to participate in Greek losses. This joins approval from Jean-Claude Juncker to the German plan and a comment made by a senior German adviser that a Greek default could be weathered. The ECB is cornered.

FXCM Speculative Sentiment Index shows smaller gains for the euro: 52% are long, after shorts had a majority beforehand. According to this contrarian index, this shows losses for EUR/USD.