The markets finally had some French and German data to cheer about on Thursday, and the good news helped the Euro USD reverse its downward slide. However, concerns remain high that Spain may be forced to ask for an international bailout, as the recession and banking crisis and high borrowing costs weigh heavily on the economy. With the elections still three weeks away, look for Greece to remain in the daily headlines. In the US, Pending Home Sales dropped sharply, raising concerns about the US recovery. There are a lot of EZ and US releases today, with the most important being US GDP and Employment data.
Here’s an update on technicals, fundamentals and what’s going on in the markets.
- Asian session: The pair dropped below the 1.24 line, falling to 1.2393, and consolidated at 1.2396. The euro has edged up in the European session, trading at 1.2420.
- 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 strengthened in resistance, as the pair continues to drop.
- 1.24 is fluid, as the pair broke through this line in the Asian session before retracing.
- 1.2330 is the next support level.
Euro/Dollar higher on upbeat French and German data – click on the graph to enlarge.
- 6:00 German Retail Sales. Exp. +0.1%. Actual +0.6%.
- 6:45 French Consumer Spending. Exp. +0.3%. Actual +0.6%.
- 7:00 ECB President Draghi Speaks.
- 7:55 German Unemployment Change. Exp. +7K. Actual 0K.
- 9:00 Euro-zone CPI Flash Estimate. Exp. +2.5%. Actual +2.4%.
- 9:00 Italian Prelim CPI. Exp. +0.1%.
- 11:30 US Challenger Job Cuts.
- 12:00 FOMC Member Pianalto Speaks.
- 12:15 US Non-Farm Employment Change. Exp. +145K.
12:30 US Prelim GDP. Exp. +1.9%.
12:30 US Unemployment Claims. Exp. +369K.
12:30 US Prelim GDP Price Index. Exp. +1.5%.
13:45 Chicago PMI. Exp. 56.7 points.
All Day: Irish Stability Treaty Vote.
14:30 US Natural Gas Storage. Exp. +75B.
15:00 US Crude Oil Inventories. Exp. +0.2M.
For more events and lines, see the Euro to dollar forecast
- German and French releases impress markets: Positive economic data out of Germany and France gave the markets something to cheer about, for a change. French Consumer Spending jumped 0.6%, exceeding the market forecast of 0.3%. The German Unemployment Rate nudged down from 6.8% to 6.7%. German Retail Sales was up 0.6%, easily beating the estimate of 0.1%. This was particularly good news after several weak German releases raised concerns about the German economy. EUR/USD climbed back above the 1.24 after the strong releases. Is the Euro’s bumpy drop finally over?
- 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 are at 6.7% – 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 government. Earlier in the week, ratings agency Egan-Jones downgraded Spain’s credit rating for the third time this month. Spain’s desperate balancing act can’t continue for much longer.
- Greek banks get 18 billion euro lifeline: The EFSF finally transferred money to Greece’s largest banks to help them keep afloat. This is supposed to create stability in the banking sector 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 gives thumbs up to pro-bailout parties: A swing towards pro-bailout parties in the latest polls helped the euro recover, or at least slowed the currency’s descent. Greece imposed a ban on polls two weeks before the elections, but count on the markets to jump on every scrap of election news, real or rumor. See how to trade the Grexit with EUR/USD.
- Contingency plans for Grexit: At the recent EU Summit, EZ leaders declared that they want Greece to remain in the EZ. Despite the lofty rhetoric, contingency plans are in the works at central banks, big banks and everywhere else. French banks are the most exposed to Greek debt, and several of them, including Credit Agricole, BNP Paribas and Societe Generale, have drawn up plans for a Grexit. Talk of a Greek leaving the EZ, 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.
- 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. If weakness in durable goods orders and a very disappointing Consumer Confidence weren’t cause of concern, the awful Pending Home Sales figures should be. The indicator plummeted 5.5%, its worst showing since last May. The release of US GDP and Employment data later today could affect the movement of EUR/USD.