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Euro dollar  managed to recover from the downgrade of Italy by S&P and is trading higher within the range, that is becoming more clear. Hopes for a resolution between the “troika” and Greece help the euro, while other worrying news from Germany and France is currently on the sidelines. We have some important data from the US, as tension towards the FOMC decision mount.

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

EUR/USD Technicals

  • Asian session: The Italian downgrade sent the pair below 1.36, but it managed to recover in the European session..
  • Current range: 1.3630 to 1.37.EUR USD Chart September 20 2011
  • Further levels in both directions: Below    1.3630, 1.3580, 1.3510, 1.3440, 1.3350, 1.3250.
  • Above:  1.37, 13788 1.3838, 1.3788, 1.3838, 1.3950, 1.4030, 1.41, 1.4160, 1.4220 and 1.4282
  • Very important support is still far, at 1.3440. There are many small steps before this point.
  • 1.37 is weak resistance before 1.3838.

Euro/Dollar higher in range  – click on the graph to enlarge.

EUR/USD Fundamentals

  • 6:00  German PPI. Exp. +0.1%. Actual -0.3%.
  • 9:00 German ZEW Economic Sentiment. Exp. -44.3. Actual -43.3.  
  • 9:00 European ZEW Economic Sentiment. Exp. -42.3. Actual -44.6.
  • 12:30 US  Building Permits. Exp. 600K.
  • 12:30 US Housing Starts. Exp. 590K.

* All times are GMT.

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

EUR/USD Sentiment

  • Italy downgraded: Rating agency S&P downgraded Italy in the hide of night. The lower rating reflects not only the high debt pile, but also the political ineffectiveness, according to S&P. The pair recovered from the fall as this was largely expected.
  • German business confidence lower: The ZEW Economic Sentiment Index dropped to -44.3 points, lower than last month’s already low score but a bit better than expected. This reflects deepening pessimism.
  • Troika and Greece get closer: The EU / ECB / IMF troika laid out fresh demands from Greece, in order to release the next tranche of aid €8 billion. . Among these demands, is a cut of 100K jobs in Greece. Intense negotiations followed these demands. A long conference call yesterday ended with a decision to make another conference call.
  • Bernanke awaited: The focus is still at Europe, but it will shift towards Wednesday’s highly anticipated rate statement in the US.  While QE3 has low chances, Bernanke and his colleagues might introduce a wide variety of monetary stimulus and this might weaken the dollar. See the FOMC Preview for 7 scenarios for this event.
  • French banks in trouble: Fresh reports show more pressure on French banks. German conglomerate Siemens withdrew €500 from Societe Generale. In addition, Bank of China halts FX swaps with European banks, with Greece exposed French banks in the limelight.
  • Dollar Liquidity Move Boosts the Euro: The dramatic announcement by 5 central banks to provide longer dollar liquidity for European banks provided a big relief for the euro, while the euphoria is fading out. Could this be a preparation for the Big Greek Default?
  • Obama suggest budget cuts: In order to counter the jobs bill, the US president will lay out his suggestions for budget cuts. A disapproval for these measures will weaken the dollar.