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Euro dollar  starts the week on a low note, sliding lower on more weak retail sales and investor confidence. Berlusconi’s shaky ground in Italy sends Italian bond yields to alarming levels and weighs heavily on the euro, while the political progress in Greece is already forgotten.

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 initial climb to the veteran 1.3838 line but this is followed by a slide back to the previous range. The pair continued downwards in the European session..
  • Current range:  EUR USD Chart November 7 2011
  • Further levels in both directions: Below   1.3650, 1.36, 1.3550, 1.35, 1.3450, 1.3360, 1.3250.
  • Above:   1.3725, 1.38, 1.3838, 1.39, 1.3950, 1.4050, 1.4130, 1.42, 1.4250, 1.4282.
  • 1.3650 is the clear bottom of the current range
  • Strong resistance remains at 1.3838, which has a strong role.

Euro/Dollar in tight range  – click on the graph to enlarge.

EUR/USD Fundamentals

  • 9:30 Euro-zone  Sentix Investor Confidence. Exp. -19.7. Actual -21.2.
  • 10:00 Euro-zone Retail sales. Exp. 0%. Actual -0.7%.
  • 11:00 German Industrial output. Exp. -0.7%.
  • 20:00 US Consumer credit. Exp. 5.1 billion.

* All times are GMT.

For more events later in the week, see the Euro to dollar forecast

EUR/USD Sentiment

  • Berlusconi under examination: Italy’s Prime Minister is in trouble. He was grilled at the G-20 Summit, to which he came empty handed. An IMF mission will be sent to Rome. It is unclear if he has enough votes to pass a confidence vote and the scandals  surrounding him continue to mount. The euro-zone’s third largest economy is suffering from the bond vigilantes:    ten year note yields are at a new high of 6.65%, while also 1 year notes are getting close to 6%. Two year yields are above 6%. The rise in short term yields is very dangerous as Italy needs a lot of refinancing. The ECB is buying in the markets, but this is limited.
  • Greek Prime Minister to step down: George Papandreou agreed to step down in favor of a coalition government led by his party. This government will aim to secure the second bailout program for Greece and will then call elections, probably in February. Perhaps the referendum trick wasn’t so brilliant, but he hasn’t said his last word.
  • Recession coming to Europe: The new president of the ECB oversaw a unanimous decision to cut the rates in the euro-zone to 1.25%. He seems less stubborn and more practical than his  predecessor  Trichet. Draghi also acknowledged the weak economic situation, said that forecasts will probably be downgraded and spoke about a mild recession. While the initial reaction was negative, the move to cut the rates is positive for the economies of the euro-zone. Will he be practical and launch a full scale QE program as well?
  • US avoiding recession?: The fresh Non-Farm Payrolls report, with its revisions and the drop in unemployment join other figures and point to no recession in the US.
  • Bernanke doesn’t provide news: While the Fed is ready to act, Bernanke also said that the Fed has already done a lot and has been very aggressive. For a change, there has been one dovish dissenter from the decision. This helped the dollar improve positions, and the certainty of the Greek referendum pushed it even higher.