The euro free fall continues, as EUR/USD has dropped to lows not seen since July 2010. Weak business climate and manufacturing data out of Germany pushed the pair downwards, and the inconclusive, unimpressive EU Summit was of no help to the beleaguered currency. There are numerous Euro-zone releases this morning, along with two key indicators out of the US – Core Durable Goods Orders and Unemployment Claims.
Here’s an update on technicals, fundamentals and what’s going on in the markets.
- Asian session: EUR/USD moved downwards, reaching a low of 1.2534, and consolidated at 1.2537. The pair has edged upwards in the European session, trading at 1.2552.
- Current range: 1.25 to 1.2587.
- Further levels in both directions: Below: 1.25, 1.24 and 1.2320.
- Above: 1.2587, 1.2623, 1.2660, 1.2760, 1.2814, 1.2873, 1.29, 1.2960, 1.30, 1.3050, 1.3110 and 1.3180.
- 1.2587 was breached by the pair in the Asian session, and is now providing weak resistance.
- 1.25 is the next support line.
Euro/Dollar down sharply on weak German data – click on the graph to enlarge.
- 6:00 German Final GDP. Exp. +0.5%. Actual +0.5%.
- 7:00 French Flash Manufacturing PMI. Exp. +47.1 points. Actual +44.4 points.
- 7:30 German Flash Services PMI. Exp. +51.9 points. Actual +52.2 points.
- 8:00 German Ifo Business Climate. Exp. 109.4 points. Actual 106.9 points.
- 7:00 Euro-zone Flash Manufacturing PMI. Exp. +46.1 points. Actual +45.0 points.
- 7:00 Euro-zone Flash Services PMI. Exp. +46.9 points. Actual +46.5 points.
- 12:30 US Core Durable Goods Orders. Exp. +1.1%.
12:30 US Unemployment Claims. Exp. +372K.
12:30 US Durable Goods Orders. Exp. +0.5%.
13:00 ECB President Draghi Speaks.
13:00 Belgium NBB Business Climate. Exp. -10.6 points.
13:00 US Flash Manufacturing PMI.
14:30 FOMC Member Dudley Speaks.
14:30 US Natural Gas Storage. Exp. 77B.
17:00 FOMC Member Dudley Speaks.
19:00 Treasury Sec Geither Speaks.
For more events later in the week, see the Euro to dollar forecast
- EU Summit Disappoints: The markets were not impressed with yesterday’s EU Summit, which turned out to be little more than a photo-op and a plea for Greece to take austerity measures in order to qualify for the bailout package. There was no agreement on President Hollande’s proposal on the introduction of joint euro bonds, as Germay and France remain far apart on how to tackle the severe debt crisis. Hollande has support for the Euro bond proposal outside of France, so German Chancellor Merkel will not be able to sweep it under the carpet. Irish Prime Minister Enda Kenny, for example, called the idea “worth “exploring”. Greece and Spain may be in the daily headlines, but there are other pressing problems, such as the issues of a possible ECB interest cut and inflation pressures in the Euro-zone.
- Weak German Data slams euro: Germany, the key economy in the Euro-zone, produced weak data, sending the Euro tumbling even further. The German Business Climate and Manufacturing PMI indicators were both below market forecast, and concerns are mounting that the reliable German economy may be sputtering. The Euro-zone can ill afford more weak releases out of Germany, and if the bad news continues, look for the Euro’s misery to continue.
- Greek elections could be Euro-zone referendum: The markets are hoping that the June elections will resolve the political uncertainty in Greece. The mainstream New Democracy party and the left-wing SYRIZA party are the front runners. SYRIZA is running on a platform against austerity measures and the bailout package. A strong showing by these parties could break the current impasse, one way or another.
- Grexit gaining ground: Even if a pro bailout party is elected, the wheels of a euro-exit are already in motion. Greeks are withdrawing their money from banks and deferring tax payments, which is exacerbating the severe fiscal crisis. Greece’s coffers are in danger of drying up. How long can this juggling continue? . See how to trade the Grexit with EUR/USD.
- Bailout for Spain?: The Euro-zone’s fourth largest economy may get a bailout for its banks or even for itself. There is more talk about a rescue package, and the Moody’s downgrading of 16 Spanish banks is causing more pressure. Spain may be forced to use its ”plan C” for a rapidly deteriorating situation sooner rather than later. Italian economy slumps: The euro-zone’s third largest economy is slipping fast: a reading of -0.8% in Q1 – a third consecutive contraction. With the woes in Greece and Spain taking center stage, Italy remains out of the limelight, at least for now.
- US Economy’s Health Questionable: US data may be stronger than the Euro-zone, but it has also been leaning lower, with a mixed bag of figures: For example, this week’s US Existing Home Sales met the market forecast, but a Manufacturing Index looked terrible. Uncertainty remains high, as the economy has been unable to demonstrate sustained growth.
- Fed staying on sidelines, for now: Troubles in the euro-zone and the mild growth in the US aren’t enough to trigger action from the Fed, at least not yet. A bigger fall is necessary. Fed Chairman Beranke seems content to lie below the radar and not make much noise.