EUR/USD continued yesterday’s (Oct. 8) decline as the pair briefly tested the 1.29 line. The pair is now at low support. European finance ministers, meeting in Luxembourg, hailed Greece’s austerity efforts, but a German ECB member was less flattering and more pessimistic about ECB flexibility towards Greece. Uncertainty continues to linger over a Spanish bailout, although market sentiment is that a rescue request is a just a question of time. A top economic advisor of Chancellor Merkel caused a row by bluntly stating that Germany is willing to support bailouts in order to help German banks. With a background of ongoing sparring between Germany and Greece, Chancellor Merkel visits Athens today, under heavy security.
Here’s an update about technical lines, fundamental indicators and sentiment regarding EUR/USD.
EUR/USD Technical
- Asian session: Euro/dollar was steady, trading at around 1.2970. The pair is lower in the European session.
- Current range: 1.2900 to 1.2960.
Further levels in both directions:
- Below: 1.2900, 1.2814, 1.2750, 1.2670, 1.2624, 1.2587, 1.2520 and 1.2460.
- Above: 1.2960, 1.30, 1.3060, 1.3105, 1.32, 1.3290, 1.34, 1.3437, 1.3480 and 1.3540.
- 1.3060 is a strong line on the upside.
- 1.2900 is providing weak support.
Euro/dollar down as of Merkel visits Athens- click on the graph to enlarge.
EUR/USD Fundamentals
- 6:45 French Government Budget Balance. Exp. -97.7B.
- 6:45 French Trade Balance. Exp. -4.9B. Actual -5.3B.
- 7:30 ECB President Mario Draghi Speaks.
- All Day: ECOFIN Meetings.
- 14:00 US IBD/TIPP Economic Optimism.
EUR/USD Sentiment
- German official’s comments rile Spain: “When we rescue Spain and Greece, we are thinking about our banks“ said Jürgen Donges, one of the 5 members in Germany’s economic council. Hearing a senior German official say this clearly caused anger in Spain. If his words continue to echo, it might delay the bailout request. And were does the bailout request stand? Spain’s deputy PM said the bailout is a question of “when” and not “if”, but other senior figures said that this decision depends on conditions, and that it might not be made. ECB president Mario Draghi made it clear that the central bank’s OMT program is ready for use for Spain, but Spain needs to ask for aid. While Spain is getting closer to such a move, the open question regarding direct bank recapitalization and the northern objection to act for “legacy” issues certainly contributes to the delay. Other reasons for a delay are the relatively lower yields (that could flip anytime) and regional elections on October 21st.
- Greece/Troika talks deadlocked: Meeting in Luxembourg, European finance ministers were full of praise over Greece’s determination to trim its budget and improve its fiscal situation, raising the likelihood that the ECB will approve the next bundle of bailout funds. German chancellor Angela Merkel visits Athens today, as her Greek hosts hope she arrives and departs without incident. No less than 6,000 security personnel will be deployed to safeguard her visit, which will be “welcomed” by strikes and protest. In the meantime, there is little progress in negotiations between the troika and the Greek government. There was some talk that the ECB could accept a delay in payments or lower interest rates, but this was ruled out by Jörg Asmussen, a German member of the ECB which is considered close to the German government. He also said the current calm is “deceptive”. So, the next “deadline” is the EU Summit on October 18-19th.
- Stronger US employment numbers enter political debate:With the US elections looming, every economic release becomes critical and part of the campaign strategy of both sides. The US added 114K jobs in September, and revisions added an additional 86K. In addition, the unemployment rate fell to 7.8%, despite a rise in the participation rate – a figure that is very important for Bernanke. These goods figures were marred by a rapid gain in temporary jobs rather than permanent ones, and they stirred a political debate as elections are less than a month away. In general, the market favors Romney – the Republican’s strong showing in the first television debate boosted the markets and weakened the dollar.
- US Releases Mixed: The downwards revision of Q2 GDP was quite depressing and showed that the US economy is at stall speed. However, improvement from housing and a surprising drop in jobless claims are positive points. Both and The ISM Non-Manufacturing PMI easily beat the market estimate and the ADP Non-Farm Employment Change pushed higher for the third consecutive month. Meanwhile, gas prices have spiked sharply in many states. This not only leads to higher prices throughout the economy, but could affect consumer confidence and impact on the tight presidential race, with elections less than a month away.
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