EUR/USD May 20 – Falling From Channel On Spanish

EUR/USD reached the top of the uptrend channel and bounced sharply lower, now falling below uptrend support, as protests rage in Spain and the debate regarding Greece is escalating, and despite good European figures. Will it close a positive week, or lose its gains now? Here’s a quick update on technicals, fundamentals and what’s going on in the markets.

EUR/USD Technicals

• Asian session: Quiet session sees the pair drifting above 1.43. The fall began in the European session.
• Current range 1.4160 – 1.4282.

• Further levels in both directions: Below 1.4160, 1.4030, 1.3950, 1.3860, 1.3760, 1.3570, 1.3440.
• Above:  1.4282, 1.4375, 1.4450, 1.4580, 1.4650, 1.47, 1.4775, 1.4882, 1.5020,
• The channel on the hourly chart starts at the beginning of the week. Uptrend support is now at 1.4250.
• 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.
• 1.4282, the peak from November 2010, was just broken.

Euro/Dollar bouncing off resistance  – click on the graph to enlarge.

* Updated 11:00 GMT.

EUR/USD Fundamentals

• 6:00 German PPI. Exp. +0.6%, actual +1%. Euro bullish.
• 8:00 European Current Account. Exp. -5.7 billion. Actual -4.7 billion.
• 12:00 US FOMC member William Dudley talks. Dovish tone likely.
• 14:00 European Consumer Confidence. Exp. -12.

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

EUR/USD Sentiment

• Spanish protests amass: The real democracy movement is gaining traction quickly. Protests and camp ins are at around 20 cities. These protests against the political parties and the banks come before regional elections on Sunday. The new authorities might reveal a huge pile of hidden debt. Spanish yields on 10 year notes are at 5.46%, still under the peak of 5.6%.
• Jean-Claude VS Jean-Claude: ECB president Jean-Claude Trichet reportedly left a meeting with anger over the use of the new buzzwords (re-profiling, soft restructuring) by Jean-Claude Juncker, head of the Eurogroup. The economic jargon is widened with many creative words regarding the Greek crisis. Whatever the details and the title is, it’s now clear that bondholders won’t get fully paid, despite the fierce opposition from the ECB, that holds a lot of Greek debt. Germany wants to delay the decision as much as possible. This delay is meant to prepare the public. But the markets don’t need preparation. They’re moving. It is clear that Greece will default.
• Debt crisis worries from 6 countries: Fresh news around the meeting of finance ministers regarding the three troubled countries, and data from 3 other countries, including  Spanish hidden debt, are a reason for great concern.
• Jobs improvement in the US?: Weekly jobless claims were slightly better than expected, but still above 400K.
• Slow Tightening in the US: The meeting minutes hints on very gradual tightening – nothing unexpected. They did decide on QE2 Lite, and this hurt the dollar. The minutes will allow us to see what the hawks think, and we know there are quite a few of them.
• IMF head quits: Dominique Strauss-Kahn, head of the IMF, that was arrested in New York for charges on a sex crime, resigned, although he continued to plead not guilty. 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.

FXCM Speculative Sentiment Index shows smaller gains for the euro: 58% are short, up from 53% yesterday. According to this contrarian index, this shows a push back up for EUR/USD.