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EUR/USD  moved up from yesterday’s  (June 5th) levels, as  speculation grows that the  ECB may lower interest rates later today, in an effort to stabilize markets.  The most pressing problems include Greece, where elections could well determine whether  the country  remains in the EZ.  As well, there seems to be no consensus among EZ leaders on what to do about the banking crisis in Spain, and the markets  remain jittery  about the continued inaction by politicians and policymakers. Most analysts are predicting that the ECB will not tamper with the interest rate level. Whatever happens, we could see some movement by EUR/USD following the rate announcement.  Today’s key releases include the ECB rate decision, as well as a press conference given by ECB head Draghi.  The markets will also be eyeing German Industrial Production, to be released today.

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

EUR/USD Technicals

  • Asian session: The pair climbed to 1.2517, and consolidated back below the 1.25 line, at 1.2486. The euro has  retraced in the European  session, and was trading at 1.2501.
  • Current range: 1.25 to 1.2587.

 

  • Further levels in both directions: Below: 1.25, 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 and 1.2814.
  • 1.25 is fluid, and currently providing weak support.
  • 1.2460 is the next support level  for the  pair.  
  • 1.2587 is a strong resistance line.

Euro/Dollar drops on talk of ECB lowering interest rates – click on the graph to enlarge.

EUR/USD Fundamentals

  • 9:00  Euro-zone Revised GDP. Exp.  0.0% points. Actual: 0.0%.
  • 10:00  German Industrial Production.  PMI. Exp. -0.9%.
  • 11:45   ECB Minimum Bid Rate. Exp. +1.0%.
  • 12:15 FOMC Member Lockhart Speaks.
  • 12:30 ECB Press Conference.
  • 12:30 US Revised Nonfarm Productivity. Exp. -0.6%.
  • 12:30 US Revised Unit Labor Costs. Exp. +2.3%.
  • 13:30 FOMC Member Lockhart Speaks.
  • 14:00    FOMC Member  Tarullo Speaks.
  • 14:30 US Crude Oil Inventories. Exp. -1.1M.
  • 18:00 Beige Book.
  • 19:30 FOMC Member Williams Speaks.
  • 23:00 FOMC Member  Yellen Speaks.  

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

EUR/USD Sentiment

  • Markets hopeful for ECB intervention: With the EZ  economies sputtering,  and even reliable Germany releasing weak data,    there is growing  speculation that the ECB may slash interest rates by 0.25% today. The markets would like to see some action by the ECB  – a lower rate would demonstrate that the central bank is “taking the bull by the horns” in an effort to provide some stability to the markets. However, ECB chief Draghi has said clearly that the ball is the governments’ court and released a stark warning in an official appearance in the European parliament. The consensus is that the central bank will leave rates unchanged at 1.0%.
  • German data disappoints: Germany, the reliable locomotive of the EZ, is showing signs of weakness. German Factory Orders was the latest bad news, declining -1.9%. Germans  appear to be fed up with the situation in Greece – a poll found that half of all Germans would like to see Greece leave the Euro-zone.   It’s a stretch to point a finger at Greece  for weak  German factory orders, but it seems clear  that  Germany is tired of supporting the weaker EZ members.
  • Bailout for Spain?: Bailouts  seem to   be  becoming a trend in the EZ, as    Greece, Ireland and Portugal are all under international bailout programs. There are reports suggesting that a bailout plan for Spain, the euro area’s fourth largest economy, is in the works and that Germany is pressuring Spain to accept such a program. The report suggests a minimal package of 50 to 80 billion euros to shore up the ailing banks. Spanish 10 year bond yields remain extremely high, at around 6.50%.  Spain’s Treasury Minister Cristobal Montoro  has  declared  that financial markets  are effectively closed to Spain because of the current high level of the country’s borrowing costs. There is no longer any doubt that Spain needs European assistance to recapitalise their broken banks.  Exactly how  to go about this  promises to be a  sticky problem.   A classic bailout is just one of the possible options to rescue Spain.
  • US data weak: Recent US employment data was very weak, and other economic releases have not been impressive. This casts yet another shadow on global growth. Some think that this will trigger the Fed to action, but it doesn’t seem real as inflation isn’t low enough and the effect of bond buying with historically low US yields is meaningless. The Fed may have exhausted its options, and may be  resigned to cheering from the sidelines.
  • Greek elections a toss-up: The last polls for the Greek elections were mixed: some show a tie between leading pro-bailout New Democracy and anti-bailout SYRIZA. Others show one of the parties leading. We are now in the “blackout” period in which polls are banned. The election of anti-bailout SYRIZA will certainly accelerate the Greek exit, but the election is too close to call and will likely remain so right down to the wire. See how to trade the Grexit with EUR/USD.
  • Money leaving Greece: With all the political and fiscal uncertainty plaguing Greece, it’s no exaggeration to see the country is a mess. Greek banks received 18 billion euros in recapitalization money but this seems like a temporary relief. Companies are moving money out of the country, 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.