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Euro dollar  fell off the high range after failing to break above critical resistance. Europe is still awaiting the EFSF approval from Slovakia, and uncertainty about the size of the Greek haircut and the damage to the European banking system still looms, erasing some of the optimism seen yesterday.  

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

EUR/USD Technicals

  • Asian session: A quiet session saw the pair around 1.38. The fall began in the European session.
  • Current range: 1.37 to 1.3750.EUR USD Chart  13 2011
  • Further levels in both directions: Below 1.37, 1.3630, 1.3550, 1.35, 1.34, 1.3360, 1.3285.
  • Above:   1.38, 1.3838, 1.3950, 1.4030, 1.4160.
  • 1.37 was fierce resistance, and it when it was broken, the euro jumped much higher. It now turns into support and is closely watched.  
  • 1.3838 proved to be very tough resistance. Now the pair will struggle first to rise above 1.3750, which is a small hurdle and then 1.38.

Euro/Dollar in rising channel  – click on the graph to enlarge.

EUR/USD Fundamentals

  • 6:00  German Final CPI. Exp. +0.1%. Actual +0.1%.
  • 8:00  ECB Monthly Bulletin. No big news there.
  • 12:30 US Unemployment claims. Exp. 406K.  
  • 12:30 US  Trade Balance. Exp. -46 billion.
  • 18:00 US  Federal Budget Balance. Exp. -65 billion.

* All times are GMT.

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

EUR/USD Sentiment

  • What will be the size of the Greek haircut?: Many numbers are flying in the air, but it will certainly be above the 21% offered in the July 21 summit. Estimates reach 60%. This has significant implications for the banks. While Merkel, Sarkozy and also Olli Rehn have released optimistic statements about a plan underway, without details, the worries return.  This fits perfectly well with  The Plan  of a Greek default at the beginning of November.
  • Important Italian bond auction: There are many bond auctions in Italy, but this one arrives at a time when yields are high once again, and the government faces a confidence vote in parliament. Update: Italy raised the money it planned to raise, but it paid a high price.
  • Slovak government falls but will likely approve the EFSF powers: The leaders in Slovakia tied the vote on the EFSF powers to a confidence vote and lost the vote. The current caretaker government will likely push to approve these July 21 decisions with opposition support. The opposition might join the government or be handed early elections. In any case, the full 17 member ratification will likely be sealed in the next few days.
  • Greece going to get aid soon?: The technical staff of the troika released its report. There is no clear approval of the next tranche of aid, but the assumption is that this will eventually happen.
  • The Fed was considering QE3?: The FOMC meeting minutes showed that some members (unnamed) were suggesting more QE. All in all, the Fed discussed quite a few options before deciding on Operation Twist and shows that it still has some bunnies, although they cannot do much to help the economy.
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