The EUR/USD has lost ground, and is testing the critical 1.30 line. The markets continue to focus on developments in Spain. PM Mariano Rajoy received a major boost over the weekend as his center-left Popular Party increased its majority in regional of Galicia. The good news was short-lived, however, as Moody’s cut the credit ratings of Catalonia and four other Spanish regions on Monday. There are no scheduled releases out of the Euro-zone or the US today. There are only a few releases today, but Wednesday promises to be busy, with a host of PMI releases and a statement from the Fed policy-setting meeting.
Here’s an update about technical lines, fundamental indicators and sentiment regarding EUR/USD.
EUR/USD Technical
- Asian session: Euro/dollar edged higher, and consolidated around 1.3050. The pair has edged higher in the European session.
- Current range: 1.30 to 1.3060.
Further levels in both directions: 
- Below: 1.30, 1.2960, 1.29, 1.2814, 1.2750, 1.2670, 1.2624 and 1.2587.
- Above: 1.3060, 1.3105, 1.3170, 1.3290, 1.34, 1.3437 and 1.3480.
- The pair is testing 1.30 as it weakens.
- 1.3060 is the next line on the upside.
Euro/dollar edges down following Spanish regions downgraded- click on the graph to enlarge.
EUR/USD Fundamentals
- 13:00 Belgium NBB Business Climate. Exp. -10.8 points.
- 14:00 Euro-zone Consumer Confidence. Exp. -26 points.
- 14:00 US Richmond Manufacturing Index. Exp. +3 points.
For more events and lines, see the Euro to dollar forecast
EUR/USD Sentiment
- Moody’s downgrades five Spanish regions: The Moody’s credit rating agency, which surprised the markets last week when it maintained Spain’s rating, brought down the gauntlet on Catalonia and four other regions – Andalucia, Castilla-La Mancha, Catalunya and Murcia. Moody’s cited poor liquidity and the huge debt problems that these regions are facing. The downgrade is another headache for the central Spanish government, and is sure to weigh on the euro.
- Regional Elections bolster PM Rajoy: Prime Minister Mariano Rajoy received some much-needed good news on the weekend as his Popular Party won an absolute majority in the northeastern region of Galicia. In the Basque region, the PNV and Bildu, both staunch nationalist parties, were the winners. Madrid will no doubt spin the electoral victory in Galicia as a vote of confidence for the Spanish government’s austerity program. More importantly, the Spanish government may now feel that it can afford to delay a request for a relief package, which will mean more uncertainty in the markets.
- EU leaders mull “super bank commissioner”: Leaders of the 17 euro countries at the EU Summit agreed to move forward with plans to create a single banking supervisory authority. However, the plan, which would represent an important step in European financial integration, is vague on key details, such as when the “super bank commissioner” will begin his/her work. Under the initiative, the Euro bank commissioner would be responsible for all 6,000 banks in the Euro-zone. ECB policymaker Joerg Asmussen has come out in favor of the idea, while German Finance Minister Wolfgang Schaeuble went a step further, stating that the EU needs a commissioner with power over member nations’ budgets.
- Greek/Troika talks continue: Talks continue between Greece and the European Union, European Central Bank and International Monetary Fund on a new set of spending cuts and economic reforms in exchange for the next installment of bailout funds, worth 31.5 billion euros. The talks have dragged on for months, and Greece claims it will run out of funds in November if it doesn’t receive the funds. According to a German media report, the German finance ministry was studying a proposal whereby the Greek government could borrow money from the ESM bailout fund and buy back its own bonds for 25% of their value, so that every euro would reduce the debt mountain by 4 euros. The German Finance Ministry refused to comment, sticking to the government’s official policy that no decisions will be made until the troika’s report is completed.
- US economy improving (maybe): Recent data out of the US has been mixed, as the economy seems to take two steps forward and one back. The Unemployment Rate dropped to 7.8%, but Unemployment Claims were much higher than the estimate. There are signs of an improving economy – housing numbers and consumer confidence, for example are pointing up. On the flip side, gas prices have spiked, government debt is at record levels, and the road to recovery promises to be a long one. With a tight presidential election only two weeks away, every US release will be under the microscope as Republicans and Democrats fight hard to use any economic data to their advantage.
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