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EUR/USD started the week with big dive, and lost a critical support level. The fall to this two month low comes on the background of the political mess in Spain, the uncertainty about Greece and weak growth in Germany that weighs on the whole continent (flash PMI). Where will this stop? Here’s a quick update on technicals, fundamentals and what’s going on in the markets.

EUR/USD Technicals

  • Asian session: Active session sees an immediate downfall from the 1.4160. The fall accelerated in the European session.
  • Current range 1.3950 – 1.4030

EUR USD chart May 23

  • Further levels in both directions: Below 1.3950, 1.3860, 1.3760, 1.3570, 1.3440.
  • Above:  1.4030, 1.4160, 1.4282, 1.4375, 1.4450, 1.4580, 1.4650,
  • 1.4030 critical support is lost – it has been a very distinct line, separating range. A loss of this line opens the road to quicker falls.
  • 1.3950 is the next line, but strong support is only at 1.3950.

Euro/Dollar losing critical support  – click on the graph to enlarge.

* Updated 11:00 GMT.

EUR/USD Fundamentals

  • 7:00 French Flash Manufacturing PMI. Exp. 57. Actual 55.
  • 7:00 French Flash Service PMI. Exp. 62.2. Actual, 62.8.
  • 7:30 German  Flash Manufacturing PMI. Exp. 61.2. Actual 58.2 – first disappointment.
  • 7:30 German Flash Services PMI. Exp. 57.1. Actual 54.9 – second disappointment.
  • 8:00 All-European  Flash Manufacturing PMI. Exp. 57.6. Actual: 54.8.
  • 8:00 All-European Flash Services PMI. Exp. 56.6. Actual 55.4.
  • 8:50 ECB member  Tumpel-Gugerell talks.
  • 9:30 ECB member  Ordonez talks.

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

EUR/USD Sentiment

  • German growth weakens: Also Europe’s powerhouse is slowing, as seen in these fresh PMI figures. This goes hand in hand with the drop in factory orders, and weighs on the all-European figures.
  • Spanish protests amass as ruling party loses: Regional elections were a clear vote of no confidence for the ruling socialist party. Running the country will be much more complicated now. In addition, the protesters camped in the city squares all across the country continue to demand a change. The new authorities might reveal a huge pile of hidden debt. Spanish yields on 10 year notes jump to peak levels of 5.59%.
  • Italy gets credit warning: S&P waited for the weekend, but dropped a warning about Italy’s credit. Italy is a core county, the third largest economy in the Euro-zone. Bad news indeed.
  • No restructuring but maybe re-profiling for Greece?: Greek prime minister Papandreou announced new cuts and said that there would be no restructuring of Greece’s debt. He refused to comment on an option of “re-profiling”.  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.