EUR/USD Oct. 19 – Flirts With Resistance on Fresh EFSF

Euro dollar  changed course and is now rising in range, capped by important resistance. Reports about an agreement between Germany and France regarding leveraging the EFSF bailout fund helps the common currency, while a downgrade of Spain and worries about Portugal and Greece weigh on it.

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

EUR/USD Technicals

• Asian session: The pair climbed higher and eventually managed to cross the 1.38 line..
• Current range: 1.38 to 1.3838.

• Further levels in both directions: Below 1.3838, 1.38, 1.3725, 1.3650, 1.3550, 1.35, 1.34, 1.3360, 1.3285.
• Above:    1.3838, 1.39, 1.3950, 1.4030, 1.4160, 1.4282.
• 1.37 was a tough cap on the way up, and now provides firm support.
• 1.38 is only a minor line before 1.3838.

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

EUR/USD Fundamentals

• 8:00 Current Account. Exp. -7.3 billion. Actual -5 billion.
• 12:30 US CPI. Exp. +0.3%. Core exp. +0.2%.
• 12:30 US Building Permits. Exp. 610K.
• 12:30 US Housing Starts. Exp. 590K.
• 18:00 US Beige Book.

* All times are GMT.

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

EUR/USD Sentiment

• EFSF Rumors: The British Guardian reported about an agreement to boost the lending capability of the EFSF bailout fund to 2 trillion. This was quickly denied, and the euro dropped, after the initial spike, but continued to climb later on. Reportedly this would be presented in the October 23 summit and brought to the G-20 summit at the beginning of November. This fits perfectly well with  The Plan  of a Greek default at the beginning of November.
  
• Spanish downgrade: Moody’s slashed Spain’s credit rating to A1, more than expected. This joins downgrades from other agencies.
• Trouble in Portugal: Spain’s neighbor has a significant hole in its budget which it is now trying to fix. This sounds too familiar to Greece.
• Mother of all strikes in Greece: A two-day general strike began in Greece and joins other existing, small strikes. This will make it hard for the government to pass new austerity measures in parliament tomorrow.
• Strong US inflation: PPI surprised with a big jump. Today we have the more important CPI numbers. The excellent retail sales report from the US convinced many that the US will avoid recession, at least in Q3.  QE3 in the US isn’t likely.