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Euro dollar  is trading in high range as tension mounts towards the second EU Summit. A lot depends on the size of the leveraged bailout fund, as well as the size of the Greek haircut.

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

EUR/USD Technicals

  • Asian A quiet session sees the pair drifting marginally lower and recovery.
  • Current range: 1.39 to 1.3950.EUR USD Chart October 25 2011
  • Further levels in both directions: Below  1.39, 1.3838, 1.38, 1.3725, 1.3650, 1.3550, 1.35, 1.3450, 1.3360.
  • Above:    1.39, 1.3950, 1.4030, 1.41, 1.4160, 1.4220, 1.4282.
  • 1.3950 is the final frontier before the round 1.40 number eyed by many. Note that strong resistance above this line appears at 1.4030.
  • 1.3838 now returns to its role as support.

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

EUR/USD Fundamentals

  • 6:00  German  GfK Consumer Climate. Exp. 5.1 points. Actual 5.3.
  • 13:00 US  S&P/CS Composite-20 HPI. Exp. -3.6%.
  • 13:00  Belgian NBB Business Climate. Exp. =10 points.
  • 14:00 US  CB Consumer Confidence. Exp. 46.1 points. See how to trade this event with USD/JPY.
  • 14:00 US Richmond Manufacturing Index. Exp. 2 points.
  • 14:00 US OFHEO HPI. Exp. +0.1%

* All times are GMT.

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

EUR/USD Sentiment

  • EFSF Leverage: This seems the biggest open issue for the second EU summit on Wednesday. There are reports about a €1 trillion agreement. The markets will be more satisfied with €2 trillion. In any case, it seems that France gave up on convincing Germany to use the ECB in this process. A different, more complicated model will likely be used, making the solution being far from comprehensive. Germany will vote again on the EFSF on Wednesday. before the summit.
  • Greek haircut:  France is ready for a 50% haircut for bondholders. Germany wants 60%. Banks are “volunteering” for a 40%. These gaps will likely be bridged. In the meantime in Greece,  the parliament might be required to have a 60% majority for the upcoming summit decisions. The government doesn’t have this majority.
  • China vs. EU PMI: The independent HSBC Manufacturing PMI surprised with a jump above 50 points to 51.1. This shows that China is still growing nicely and that a scenario of a “hard landing” isn’t too close. It also helps the euro. For the whole of the euro-zone, PMIs fell, showing a growing chance of recession. The market clings to summit hopes at the moment.
  • US Situation Improving: The huge leap in the Philly Fed Index was great news, but with the current focus on the debt crisis, it was ignored. This joined the excellent retail sales report from the US convinced many that the US will avoid recession, at least in Q3.  QE3 is away from the table.
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