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Euro USD is continuing its downward spiral. Fears  are rising  that  Spain may be forced to ask for an international  bailout, as the recession  and banking crisis continue to take their toll on the economy. In Greece, the EFSF injected 18 billion euros  into the country’s struggling banks.  This may shift the focus away from the troubled nation for now, but capital continues to move out of the country. Is the Grexit an irreversible process? Yesterday’s US Consumer Confidence data was weak, hitting a five-month low. In the Euro-zone, the M3 Money Supply came in at 2.5%, well below the market forecast. Today’s key indicators include an Italian Bond Auction, a  speech by ECB  head Draghi  and US Pending Home Sales.

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

EUR/USD Technicals

  • Asian session: The pair continued lower, falling to 1.2457, before consolidating at 1.2476.  The euro  has  weakened in    the European session, trading at 1.2448.
  • Current range: 1.24 to 1.25.

  • Further levels in both directions: Below: 1.24, 1.2330, 1.22, 1.2144, 1.20, 1.1876 and 1.17.
  • Above: 1.25, 1.2587, 1.2623, 1.2660, 1.2760, 1.2814, 1.2873, 1.29 and 1.2960.
  • 1.25 has switched from a support level to a weak resistance line, as the pair continues to drop.
  • 1.24 is a key support level.  

Euro/Dollar  continues to drop  over concerns about Spanish banking sector- click on the graph to enlarge.

EUR/USD Fundamentals

  • 8:00 Euro-zone M3 Money Supply. Exp. +3.4%. Actual +2.5%.
  • 8:00 Euro-zone Private Loans. Exp. +0.7%. Actual +0.3%.
  • 8:10  Euro-zone Retail PMI. Actual 43.3 points.
  • Tentative: Italian 10-y Bond Auction.
  • 14:00 US Pending Home Sales. Exp.  0.0%. See how to trade this event with GBP/USD.
  • 15:30 ECB President Draghi Speaks.
  • 17:30 FOMC Member Dudley Speaks.

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

EUR/USD Sentiment

  • Spain  moves closer to bailout: Spanish officials deny the need for a bailout over and over again, but the markets aren’t buying it.  Spanish bond yields remain above 6% – at unsustainable levels. The announced injection of 19 billion euros into Bankia, much more than announced only two weeks earlier, and the loss of market access of banks and regions (such as Catalonia) to the markets, mean more pressure on the sovereign.  On Tuesday, ratings agency Egan-Jones downgraded Spain’s sovereign rating for the third time this month. How long can Spain back all these entities without losing market access?
  • Greek banks get 18 billion euros: The EFSF finally transferred money to Greece’s largest banks to help them keep  afloat. This is supposed to lower the level of uncertainty and stop the outflow of cash from banks. There is room for doubt if this will really help, as the uncertainty will not dissipate at least  until  elections in three weeks.  The Greek bank job continues.
  • Greek polls point to upswing for pro-bailout parties: Polls aren’t necessarily accurate, but they certainly have an impact on the nervous markets. A swing towards pro-bailout parties in the last polls sure helped the euro recover. Greece imposed a ban on polls two weeks before the elections, so the markets will soon be in the darkness. See how to trade the Grexit with EUR/USD.
  • Contingency plans for Grexit: At the recent EU summit,  EU leaders  declared their  support for Greece and a wish for the country to  remain in the EZ. Nevertheless, contingency plans are in the works at central banks, big banks and everywhere else. These institutions don’t hide it anymore. French banks have a lot of Greek debt, and several of them, including Credit Agricole, BNP Paribas and Societe Generale, have drawn up plans if the worst happens, and Greece leaves. Talk of a Greek exit, which were taboo until recently, is now being discussed openly.
  • Italy supports Eurobonds: Italian Prime Minister Mario Monti surprised the markets with his endorsement of joint eurobonds to help resolve the financial crisis.  Italy needs eurobonds in order to lower funding costs for its fast-contracting economy. Monti joined French president Hollande against Germany on this issue. Germany is becoming more isolated in Europe, but it is strongly against eurobonds,which it views as  a stopgap for the weaker members who want to push off   tough austerity  measures.
  • Germany releases weak data: Recent economic releases out of Germany,  traditionally the EU’s locomotive, have been weak. German Import Prices and Prelim CPI were both below the market forecast, and concerns are mounting that the reliable German economy may be sputtering. Further weak releases out of Germany could spell more trouble for the fragile euro.
  • US data remains a mix: At least until Thursday, when key employment data is released, the US situation remains second fiddle to European events. Jobless claims have stabilized at around 370K and home sales were above market forecast. Nevertheless, the weakness in durable goods orders and a very disappointing Consumer Confidence indicator draw a mixed picture.