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It took a long day of choppy trading, but the Euro finally bowed and dropped below the 1.32 line, and the lowest level since Trichet surprised the markets with some sneaky bond buying. It took a big amount of not-so-good news to bring the pair down. Will this break be confirmed? Here are the main forces pulling the pair down:

  • Fitch downgraded Ireland’s credit rating to BBB+. This was expected, but its still bad news.
  • US weekly jobless claims surprisingly dropped to 421K – good US also weighs on EUR/USD.
  • Allied Irish Bank hands out bonuses – the bank is struggling to survive, but the senior bankers still think they deserve bonuses.
  • Spanish  bond yields are on the rise again, reaching 5.26% – this is a good barometer for the fears in Europe.
  • ECB Focused on Portugal – this is the next domino in the European debt crisis, and the last domino that can be saved with the current bailout fund. Spain is too big to bail. In the meantime, success is very limited there.
  • US bond yields remain in the highest levels in 6 months, with 10 year notes yielding 3.25%, slightly above yesterday. There’s a high positive correlation between US yields and the US dollar.

The next level of support is at 1.3114, followed by the round number of 1.30. A correction will find resistance at 1.32 followed by 1.3267. For more technical levels, see the EUR/USD forecast.

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