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EUR/USD is now leaning lower after consolidating in a lower range. The big blow from Trichet, who wants a lower exchange continues weighing on the pair, until the all-important US Non-Farm Payrolls takes over, as well as the American doves An exciting end is expected to an exciting week. Here’s a quick update on technicals, fundamentals and what’s going on in the markets.

EUR/USD Technicals

  • Asian session:  A session of consolidation was seen after the big fall – Euro/Dollar traded in range, between 1.4520 to 1.4580.
  • Current range –  1.4520 to 1.4580.
  • EUR USD Chart May 6Further levels in both directions: Below 1.4520, 1.4450, 1.4375, 1.4282, 1.4160, 1.4030,
  • Above:   1.4580, 1.4650, 1.47, 1.4775, 1.4882, 1.5020, 1.5144, 1.5250, 1.55
  • 1.4520 worked a few weeks ago as resistance, and now it’s the bottom of the big 300+ pips downfall. It’s being tested all the time, and can be broken as events unfold.
  • 1.4580 is a historic line on the upside, but wasn’t strong in the previous round.

Euro/Dollar licking the wounds in lower range  – click on the graph to enlarge.

EUR/USD Fundamentals

  • 6:45 French Trade Balance. Exp. -6.2 billion, actual -5.7 billion.
  • 10:00  German Industrial Production. Exp. +0.6%.
  • 11:30 FOMC member Janet  Yellen speaks. A dovish, dollar-weakening tone is expected.
  • 12:30 US Non-Farm Payrolls. Exp. 185K.
  • 12:30 US Unemployment Rate. Exp. 8.8%.
  • 12:30 US  Average Hourly Earnings. Exp. +0.2%.
  • 14:00 US FOMC member William Dudley talks. Yet another dove.

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

EUR/USD Sentiment

  • Non-Farm Payrolls: As always, the king of forex trading arrives. The official expectations stand on a gain of 185K, but almost all the signs leading to this event point to a very weak outcome. A result that is too weak could have the opposite, risk aversive effect on the dollar, strengthening it against the Euro. More details in the 4 Scenarios for the on-Farm Payrolls
  • Trichet boosts the dollar: The president of the ECB not only hinted that the rate hike will be pushed back to July, but also expressed deep concern about the weakness of the dollar, taking his time in quoting US policymakers about the importance of a strong dollar. EUR/USD lost over 300 pips, commodities lost a lot of ground and the dollar rallied across the board. See the  ECB analysis for more.
  • American doves: Both Yellen and and Dudley are doves. A few weeks ago, Dudley spoke after a few hawks talked about a US rate hike, and he took all the air out of their talk, significantly weakening the dollar.
  • Greece cannot pay: CDS spreads and yields are rising again. The Portuguese deal helps Greece. But the problems in Greece haven’t gone away: the Greek government is finally admitting it can’t pay its debt and begins talking about extending the length of the loan from the EU and IMF, as a delegation comes to Greece. New signs over the weekend show that the  European Union is already working a restructuring program for Greece. The announcement can trigger contagion to other countries.
  • Bernanke declares QE2 Lite: The first ever press conference by the Fed  yielded one important decision: Maturing assets will be reinvested – the central bank will continue being active, even if it won’t expand its balance sheet. This still means printing dollars, and it weakens the dollar across the board. In addition, inflation was dismissed. This theme will accompany us for a long time. It currently seems that Bernanke is right about inflation being transitory. But his dovish tone, plus the two others’ may reverse the current move.

FXCM Speculative Sentiment Index shows an important change: 50% are short and 50% are long after the shorts were in control in the past few weeks. According to this contrarian index, this shows no more gains for EUR/USD.