The euro continues to slide, as the currency is dropping close to levels not seen since August 2010. With the EU Summit underway, the markets will be hoping that there are some tangible results and not just handshakes and hugs. The leaders will need to reach some compromise on how to fix the crisis gripping the Euro-zone. With all the bad news coming out of the Euro-zone, the markets finally had something to cheer about this morning, with a sparkling Euro-zone Current Account. The indicator posted a reading of 9.1 Billion, its best performance in over five years. Will the ailing euro respond? Today’s key release is US New Home Sales, a key indicator.
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 1.2646, The pair consolidated at 1.2675. The pair has edged downward in the European session, trading at 1.2652.
- Current range: 1.2623 to 1.2660.
- Further levels in both directions: Below: 1.2623 and 1.2587, 1.25, 1.24 and 1.2320.
- Above: 1.2660, 1.2760, 1.2814, 1.2873, 1.29, 1.2960, 1.30, 1.3050, 1.3110 and 1.3180.
- 1.2660 has been broken as the pair continues to move downwards.
- 1.2623 is the next support level. This line is a year to date low and is a critical cliff. In historic terms, 1.2587 below is even more important.
Euro/Dollar fall continues – click on the graph to enlarge.
EUR/USD Fundamentals
- 8:00 Euro-zone Current Account. Exp. +6.0B. Actual +9.1B.
- Tentative: Euro-zone Industrial New Orders. Exp. -0.1%.
- All day: EU Economic Summit.
- 14:00 New Home Sales. Exp. +335K.
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14:00 HPI. Exp. +0.4%.
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14:30 Crude Oil Inventories. Exp. +0.8M.
For more events later in the week, see the Euro to dollar forecast
EUR/USD Sentiment
- EU Summit Underway: The markets are in a cautious mood ahead as EU leaders gather for a critical summit. It will be near impossible to paper over the 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 is likely to propose the introduction of joint euro bonds, but Germany is against this idea, arguing that it would simply allow weaker members to defer painful fiscal decisions that are crucial to the Euro-zone surviving. Greece and Spain may be in the daily headlines, but there are other pressing problems to tackle, such as the issues of a possible ECB interest cut and inflation pressures in the Euro-zone.
- Greek elections could be Euro-zone referendum: The mainstream New Democracy party is now neck-and-neck with the SYRIZA party, which is against austerity measures and the bailout package. Both are gaining ground in the polls while other parties are weakening. This could break the current impasse, and reduce the political uncertainty and instability that are gripping Greece.
- Greek Exit inches closer: 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 and deferring tax payments, which is exacerbating 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 tremendous repercussions, not just for Greece, but for the entire Euro-zone.
- Bailout for Spain?: The Euro-zone’s fourth largest economy may get a bailout for its banks or even for itself. There is more talk about a rescue package, and the Moody’s downgrading of 16 Spanish banks is causing more pressure. Spain may be forced to use its “plan C” for a rapidly deteriorating situation sooner rather than later.
- G-8 Leaders offer Greece warm bear hug: The Camp David summit yielded no dramatic news. The G-8 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. The G-8 and Euro-zone leaders cannot afford to fiddle while Greece burns. See how to trade the Grexit with EUR/USD.
- Italian economy slumps: The euro-zone’s third largest economy is slipping fast: a reading of -0.8% in Q1 – a third consecutive contraction. With the woes in Greece and Spain taking center stage, Italy remains out of the limelight, at least for now. Germany’s outstanding growth of 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, with a mixed bag of figures: For example, this week’s US Existing Home Sales met the market forecast, but a Manufacturing Index looked terrible. Uncertainty remains high, as the economy is unable to demonstrate sustained growth.
- Fed tiptoes: Troubles in the euro-zone and the mild growth in the US aren’t enough to trigger action from the Fed, at least not yet. A bigger fall is necessary. Fed Chairman Beranke seems content to lie below the radar and not make much noise.
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