EUR/USD May 11 – Settling on Higher, Fragile Ground on

EUR/USD shifted to a higher range as another temporary solution for Greece cheers the markets. Will this hope last or will it be countered by dollar strength? The gains seem quite fragile. Here’s a quick update on technicals, fundamentals and what’s going on in the markets.

EUR/USD Technicals

• Asian session: Very quiet session sees the pair stabilizing higher, around 1.44.
• Current range 1.4375 – 1.4450.

• Further levels in both directions: Below 1.4375, 1.4282, 1.4250, 1.4160, 1.4030, 1.3950.
• Above:   1.4450, 1.4580, 1.4650, 1.47, 1.4775, 1.4882, 1.5020, 1.5144, 1.5250, 1.55
• 1.4375 switches roles quite nicely – the move upwards turned into support. Serious resistance is now at 1.4450.
• Note that 1.4282 is backed by 1.4250 – it happened also in the other direction, when 1.4250 was the front line before the November high of 1.4282 was reached.

Euro/Dollar settling in higher range  – click on the graph to enlarge.

EUR/USD Fundamentals

• 6:00  German WPI. Exp. +1.1%. Actual +0.2%. Shows softer consumption.
• 6:00  German Final CPI. Exp. +0.2%. Actual +0.2%.
• 12:30 US  Trade Balance. Exp. -46 billion.
• 17:00 US FOMC member  Narayana Kocherlakota talks. Hawkish tone expected.
• 18:00  Federal Budget Balance.

For more events later in the week, see the  EUR/USD forecast

EUR/USD Sentiment

• Greek optimism: It’s gradually becoming more clear that Greece will get an additional bailout package. This seems like a temporary solution that won’t prevent the next crisis, but in the meantime it helps the markets stabilize from what happened on Friday.An emergency meeting by finance ministers on Friday night probably discussed a second bailout program for Greece and not an exit of the debt laden country out of the EU. This opened the door for restructuring. Merkel understands that there are no better options. Note that on May 17th, there’s a meeting of economy and finance ministers from all over the Euro-zone. Some kind of decision needs to be made by then. Greece may not be eligible to receive the next tranche of aid for the current program though…
• Irish contagion: There are growing signs that Ireland wishes to bail out of the bailout program. An influential professor explained how it should be done, and some government officials are already saying the Ireland cannot pay its debt. This is gaining traction quickly with the prime minister already being convinced that Ireland will at least get a reduced rate, he’s under pressure in parliament to free Ireland of the bailout.
• Chinese inflation: The strong pace of inflation in China, 5.3%, shows that global pressures are still high. This can push Trichet to a more hawkish stance next time.
• Trichet boosts the dollar: The president of the ECB not only hinted that the rate hike will be pushed back to July, but also expressed deep concern about the weakness of the dollar, taking his time in quoting US policymakers about the importance of a strong dollar. EUR/USD lost over 300 pips, commodities lost a lot of ground and the dollar rallied across the board. See the  ECB analysis for more.

FXCM Speculative Sentiment Index shows smaller gains for the euro: 53% are short, down from 55% yesterday. According to this contrarian index, this shows more, yet limited recovery for EUR/USD.