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Euro USD managed to find support on low ground and bounce off. Italy’s technocrat Prime Minister Mario Monti said that Greece will likely stay in the euro-zone, and that Italy can help convince Germany to “support Europe’s common good”. Germany just opposed sharing its credit rating  through  eurobonds , and not for the first time. Will the pair close the week with a positive tone like last week? Or is the next fall around the corner?

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

EUR/USD Technicals

  • Asian session: The pair traded around support  before bouncing higher and tackling resistance at the wake of the European session.
  • Current range: 1.25 to 1.2587.

EUR/USD Chart May 25 2012

  • Further levels in both directions: Below: 1.25, 1.24 and 1.2320.
  • Above: 1.2587, 1.2623, 1.2660, 1.2760, 1.2814, 1.2873, 1.29, 1.2960, 1.30, 1.3050, 1.3110 and 1.3180.
  • 1.2587 was breached by the pair in the Asian session, and is now providing weak resistance.
  • 1.25 is  the next support line.  


Euro/Dollar  down sharply on weak German data  – click on the graph to enlarge.

EUR/USD Fundamentals

  • 6:00  German  GfK Consumer Climate. Exp. 5.7. Actual 5.7 points.
  • 13:55 US  Consumer Sentiment (revised). Exp. 77.7 points.

For more events and lines, see the  Euro to dollar forecast

EUR/USD Sentiment

  • Italian promises: Mario Monti surprised the markets with his optimistic words regarding Greece and Germany. The idea of eurobonds has been floating for a long time, and Germany rejected it time after time, including in the latest EU Summit, when the new French president suggested it. But he was taken seriously by the markets, that not only pushed the euro higher, but also pushed German yields higher for a change. This could merely be profit taking. Perhaps Monti is busy keeping Italian troubles out of the limelight: the Italian economy shrank at an alarming rate of 0.8% in Q1, and the the slump continues, according to PMIs.
  • Greece preparing for Grexit: A Russian central banker said clearly that Greece already has a plan for a parallel currency instead of the euro. This is the first time that such things (which can be assumed) are said in the open. One Greek poll shows that the anti-bailout SYRIZA party has 30% support. Another poll shows that this party is head to head with New Democracy – a pro-bailout party. The situation isn’t frozen until the elections: money is on the move.  Greece’s coffers are in danger of drying up  as Greeks are deferring tax payments, and they are also pulling money out of banks.  How long can this juggling continue? .  See how to trade the Grexit with EUR/USD.
  • Germany weakening:  Germany, the locomotive of the Euro-zone, produced weak data in several fields. The  German Business Climate and Manufacturing PMI indicators were both below market forecast, and concerns are mounting that the reliable German economy may be sputtering.  Strong German growth saved the euro-area from an official recession in Q1, but now Germany is drawn downwards rather than pulling everybody else out of trouble.
  • More Spanish Money for Banks?: The nationalization of Bankia will cost more money that was expected. Spain might discover very quickly what Ireland found out: the banks are black holes. The Euro-zone’s fourth largest economy may get a bailout for itself, and if it is lucky, only for the banks 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.
  • US Economy Growing Slowly: Jobless claims have stabilized at around 370K and home sales are showing better signs. Nevertheless, the weakness in durable goods orders and other signs draw a mixed picture. Markit’s new Flash Manufacturing PMI for the US shows that manufacturing is growing, but slower, with a drip from April to May.
  • Fed staying on sidelines, for now:  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.