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Euro dollar  failed  another attempt to break above the tough resistance line that it bounced against after the great rally as higher European inflation complicates matters for the euro once again. In addition, the final approval of the EFSF by Slovakia and the lower Chinese inflation  helps the euro, while another downgrade of Spain and looming worries about the banks’ stability will continue all the way to the close. We have quite a few indicators from US and an expected Italian drama in parliament to wrap things up.

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: 1.38 to 1.3838.EUR USD Chart October 14 2011
  • Further levels in both directions: Below 1.38, 1.37, 1.3630, 1.3550, 1.35, 1.34, 1.3360, 1.3285.
  • Above:   1.3838, 1.3950, 1.4030, 1.4160.
  • 1.37 proved once again to be a very important line, holding well as support.
  • 1.3838 is the key line to watch on the upside after two earlier attempts to break above it failed this week.

Euro/Dollar on high ground  – click on the graph to enlarge.

EUR/USD Fundamentals

  • 9:00 Euro-zone CPI. Exp. +3%. Actual +3%. Core CPI Exp. +1.5%. Actual +1.6%.
  • 12:30 US  Retail Sales. Exp. +0.5%. Core Retail Sales Exp. +0.2%.
  • 12:30 US Import prices. Exp. -0.3%.
  • 13:55 US  Consumer Sentiment. Exp. 60.2 points. See how to trade this event with EUR/USD.
  • 14:00 US  Business Inventories. Exp. +0.4%.
  • 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

  • Berlusconi faces tough confidence vote: After Italy managed to raise the money in yesterday’s auction (but paid a high price and needed ECB help), another challenge is facing the euro-zone’s No.3 economy – a confidence vote in the Italian parliament. It will be very close. A fall of the government in Italy will weigh heavily on the euro.
  • European inflation elevated indeed: The fresh release of final CPI data has shown that inflation indeed rose to a pace of 3% and core inflation is on the rise. Normally this would help the euro on hopes for rate hikes. Currently it only complicates matters for the incoming ECB president, Mario Draghi of Italy.
  • Spain downgraded again: Rating agencies continue getting headlines. This time it was S&P which downgraded Spain. Fitch downgraded Swiss bank UBS and warned about many banks, including American ones.
  • China not overheating? The small drop in Chinese inflation means that the economic giant could lower rates and enjoy a “soft landing” rather than a hard one. This is good news for “risk” currencies, which the euro belongs to.
  • Slovakia approves EFSF powers: After the government fell, opposition politicians collaborated with the government and finally voted to enhance the powers of the EFSF, so it could intervene in secondary markets and help banks. Slovakia was the last country to do so.
  • 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.
  • 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.
  • Will the US avoid recession?: Today’s large array of figures will provide an updated picture of the US economy and the US consumer.
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