EUR/USD May 16 – Settles Lower as Clouds Darken Over

EUR/USD is settling in lower ground as European leaders meet to discuss the complicating Greek woes with the absence of the IMF chief. In addition, there are quite a few events to rock the pair at the beginning of the week. Will the pair break below critical support? Here’s a quick update on technicals, fundamentals and what’s going on in the markets.

EUR/USD Technicals

• Asian session: Active session see the pair mark the borders of the new lower range, that goes deeper than Friday.
• Current range 1.4030 – 1.4120.

• Further levels in both directions: Below 1.4030, 1.3950, 1.3860, 1.3760, 1.3570, 1.3440.
• Above:  1.4120, 1.4160, 1.4282, 1.4375, 1.4450, 1.4580, 1.4650, 1.47, 1.4775, 1.4882, 1.5020,
• 1.4030 is critical support – it has been a very distinct line, separating range. A loss of this line will open the road to quicker falls.
• 1.4120 is the current resistance line, but it’s important to watch a break above 1.4160 for a true bullish sign.

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

EUR/USD Fundamentals

• 9:00 European CPI. Exp. 2.8%. Core CPI exp. 1.5%.
• 12:30 US  Empire State Manufacturing Index. Exp. 20.7 points.
• 13:00 US Federal Reserve Chairman Ben Bernanke talks.
• 13:00 US  TIC Long-Term Purchases. Exp. 58 billion.
• 14:00 US  NAHB Housing Market Index. Exp. 17 points.
• 15:00 Meeting of Euro-zone finance ministers about Greece.

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

EUR/USD Sentiment

• IMF head arrested in New York: Dominique Strauss-Kahn, head of the IMF, was arrested in New York for charges on a sex crime. DSK had an important role in pushing for the bailouts to which the IMF contributed. His absence from the meetings at this critical time makes decision making much more complicated. Greeks know they lost a friend.
• Greek pessimism towards Euro-zone meeting: Adding to the absence of DSK, Merkel is moving quite slowly for a second bailout program for Greece. Waiting for fresh tests makes everybody worried, and this pushed the Euro lower. We see a continuation of last week’s move.  The leaders are expected to discuss a second bailout program for Greece, an option of “rescheduling” the debt or “restructuring” it. This doesn’t look good, as Greece is close to a default. Note that the meeting today will be followed by a wider meeting of all EU finance and economy ministers tomorrow.
• Spanish worries: Spain’s story is too similar to Ireland. It has managed to decouple itself from Ireland, Greece and Portugal, but for how long?
• 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.
• 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. This event on May 5th was a turning point for the dollar, euro, and for commodities. See the  ECB analysis for more.