EUR/USD Mar. 21 – Challenging High Resistance

Euro dollar  stopped for a correction on the way up, but later resumed the move and is now encountering fierce resistance. Will it break higher or retreat? Bernanke’s testimony for today has already been leaked. He will state that the situation in Europe remains difficult. Existing home sales are the key event now.

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

EUR/USD Technicals

• Asian session: An active session saw the pair push high and approach the 1.3280 line.
• Current range:  1.3212 to 1.3280.

• Further levels in both directions: Below:   1.3212, 1.3150, 1.3080, 1.30, 1.2945, 1.2873 and 1.2760.
• Above:    1.3280, 1.333, 1.3430, 1.3486, 1.3550 and 1.3615.
• Uptrend support: The pair enjoys nice uptrend support on the hourly chart.
• 1.3280 proved to be strong on the upside once again. The pair is now challenging the line.
• 1.30 serves as strong support once again, and not only a round number.

Euro/Dollar at high resistance  – click on the graph to enlarge.

EUR/USD Fundamentals

• 13:30 US Federal Reserve Chairman Ben Bernanke testifies about Europe.
• 14:00 US  Existing Home Sales. Exp. 4.61 million. See how to trade this event with USD/JPY.
• 14:00 US FOMC member  Daniel Tarullo talks.
• 14:30 US  Crude Oil Inventories. Exp. +2.4 million.

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

EUR/USD Sentiment – Details of hurdles

• FOMC Split: The FOMC left policy unchanged, as expected. This strengthened the US dollar significantly and triggered a  dollar storm. The statement included an acknowledgement of higher oil prices and a more upbeat wording regarding employment, such as “the unemployment  rate has declined notably”. What’s next? Several FOMC members have spoke lately and each one has his own message. Some want to exit soon, while others are still considering QE3. Bernanke leans towards the dovish camp, but the prospects of QE3 still remain low. Apart from employment, also housing is an area of concern to the Fed. We will get some data today.
• Greece pays its debt:  March 20th was the dreaded day of Greek bond repayment. After the IMF joined the Eurogroup and gave the final approval to the second Greek bailout, Greece paid the money, mostly to the ECB. A fresh troika reports see Greece missing 2013 targets already, with more austerity needed after the elections. A projection from the Bank of Greece sees deep recession and a third bailout is certainly an option. Nevertheless, the situation is now calm around Greece.
• PSI – deadline open for foreign law bonds: Greece completed the PSI for Greek law bonds. The new ones are already trading at a quarter of a euro on the euro, reflecting a high chance of another default. CDS payments were settled yesterday. There is a small portion of bonds under international law. The deadline for the PSI on these bonds is March 23rd.
• Iran conflict heating up: In an unprecedented move, SWIFT announced it will cut off Iranian financial institutions from Saturday. This joins heightened rhetoric in Israel and elsewhere, and keeps oil high. See  5 signs that a war with Iran is getting closer.
• Chinese demand slumps: Many find Chinese figures hard to believe, yet comments from Australia’s BHP regarding lower demand from the economic giant are taken more seriously. Fresh figures showed more drops in real estate prices in the economic giant. Shifting from an export based economy to domestic consumption isn’t easy, and this has an effect on the global economy.
• US bond yields in focus: Yields on short term and long term US yields are on the rise, and this pushes funds into dollars. When yields retreated a bit, the dollar followed. The effect is stronger in USD/JPY, but EUR/USD can’t ignore it. Since Bernanke’s move, stock markets and the dollar move together. This is a big change. Good US news helps the dollar, and bad news weakens it. This may sound very normal, but it hasn’t always been this way.  See the video explanation here.
• Draghi warns about inflation: The ECB left rates unchanged and made no policy changes. In the press conference, Draghi was very satisfied with the LTROs. He also  warned about inflation, and said that the ECB has tools to fight it. Today’s CPI will provide more insight.
• Portugal in trouble: There are  heavy doubts if Portugal could return to the markets anytime soon. A second bailout program is certainly on the cards. Even worse, this may not be enough, and the peripheral country might be needing a restructuring similar to Greece.