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With the euro and euro-zone struggling, the markets are anxiously hoping that Wednesday’s EU Summit will lead to some tangible results. Skeptics might argue  that  diplomatic protocol will be needed to ensure that it doesn’t become a Merkel-Hollande bout, as the two leaders are far apart on how to fix the  crisis gripping  the Euro-zone.  The key  release today will be US Existing Homes, with the market expecting a significant improvement from the April release. Will the indicator deliver the goods?

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

EUR/USD Technicals

  • Asian session: EUR/USD edged downwards, dropping to a low of 1.2783, The pair consolidated at 1.2792. The  pair has weakened in the European  session, trading at 1.2765.
  • Current range: 1.2760 to 1.2814.

 

  • Further levels in both directions: Below: 1.2760, 1.2660, 1.2623 and 1.2587, 1.25, 1.24 and  1.2320.
  • Above: 1.2814, 1.2873, 1.29, 1.2960, 1.30, 1.3050, 1.3110 and  1.3180.
  • The pair broke out of the steep channel (seen on the daily chart here) but is making its way back in.
  • 1.2814 was temporary support and is now providing weak resistance. This line looks to be tested if Euro moves upwards.
  • The year to date low of 1.2623 is the critical cliff. In historic terms, 1.2587 below is even more important.

Euro/Dollar limited recovery – click on the graph to enlarge. EUR/USD Fundamentals

  • 10:15 US FOMC member Dennis Lockhart talks.
  • 14:00 Euro-zone Consumer Confidence. Exp. -20 points.
  • 14:00 US Existing Home Sales. Exp. 4.62M.
  • 14:00 Richmond Manufacturing Index. Exp. +12 points.

For more events later in the week, see the Euro to dollar forecast EUR/USD Sentiment

  • Hollande’s debut at upcoming EU Summit:  The markets are  in a cautious mood ahead of  Wednesday’s EU summit,  over concerns of  deep divisions  between France’s Francois Hollande, who favors encouraging growth to get the Euro-zone back on its feet, and Germany’s Angela Merkel, who insists on austerity measures. President Hollande  may propose the introduction of joint euro bonds, but Germany  is against this  idea, arguing that it would simply allow the weaker member countries to defer painful fiscal decisions that are crucial to the Euro-zone surviving.
  • Greek  elections shaping up as  euro-referendum: The mainstream New Democracy party  is now  neck-and-neck  with the anti-bailout party SYRIZA. Both are gaining ground in the polls while other parties are weakening. This could break the political deadlock seen so far, and reduce the political uncertainty and instability that are  gripping Greece.
  • Grexit wheels in motion: Even if a pro bailout party is elected, the wheels of a euro-exit are already in motion. Greeks are withdrawing their  money  from banks (although so far  as  a “jog” rather than a “run”). Others are deferring their tax payments, which just adds to the severe fiscal crisis. Greece’s coffers are in danger of drying up. How long can this juggling continue? The upcoming June election could have huge repercussions, not just for Greece, but for the entire Euro-zone and the common currency.
  • Spain next in line for bailout?: The euro-area’s fourth largest country could get a bailout for its banks or for itself. There is more talk about a rescue package, which is adding pressure. This comes after Moody’s downgraded 16 Spanish banks, including Santander, BBVA and Caixabank, who all received an A3 rating. Spain may  be forced  to use its “plan C” for a  deteriorating situation sooner rather than later.
  • G-8 Leaders  offer Greece warm bear hug: The meetings in Camp David yielded no dramatic news. Regarding Greece, all the leaders  smiled for the cameras and declared they want  to see Greece remain in the euro-zone, but that’s not news. What’s more important is  whether they came up  with  any contingency plans behind the scenes that could keep Greece afloat and in the Euro-zone.  See how to trade the Grexit with EUR/USD.
  • Italian economy slumps: The euro-zone’s third largest country is squeezing fast: 0.8% in Q1 – a third consecutive contraction. With events quickly unfolding in Greece and Spain, Italy is away from the limelight, at least for now. Germany’s outstanding growth, 0.5%, saved the euro-zone from a recession, but the country’s policymakers are  grumbling more loudly  about having  to carry  the sluggish Euro-zone all by themselves.
  • US Economy’s Health  Questionable: US data may be stronger than the Euro-zone,  but it has  also been leaning lower: weak retail sales and the negative Philly Fed Index are quite worrying, but the NY Fed Index was good and jobless claims are falling.  Uncertainty  remains high, as the economic releases remain mixed.  Key data from the home sector this week could affect the movement of EUR/USD.
  • Fed sticking to sidelines: Troubles in the euro-zone and the mild growth in the US aren’t enough to trigger action from the Fed, not yet. A bigger fall is necessary. Look for Beranke to stay below the radar and not make too much noise.