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EUR/USD continues to trade around two year lows, after a meeting by  Euro-zone finance ministers in Brussels  ended with little progress being made, apart from extending Spain’s deadline to reach its  deficit targets.  In the US, the markets  are awaiting Trade   Balance figures, as well as the release of the minutes of the Federal Reserve’s most recent policy meeting, which could  indicate whether the Fed will implement QE3.  

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

EUR/USD Technicals

  • Asian session: Euro/dollar edged upwards to a high of 1.2270, consolidating at 1.2260.  In the European session, the pair has edged upwards.
  • Current range: 1.22 to 1.2288.

 

  • Further levels in both directions:
  • Below: 1.22, 1.2150, 1.20 and 1.1876.
  • Above: 1.2280, 1.2330, 1.2360, 1.24, 1.2440, 1.2520 and 1.2624.
  • 1.2330 is the next serious line of resistance.
  • 1.22 is only a minor line before the clear historic separator of 1.2150.

Euro/Dollar  quiet before release of Fed minutes  – click on the graph to enlarge.

EUR/USD Fundamentals

  • 6:00 German Financial CPI. Exp. -0.1%. Actual: -0.1%.
  • Tentative: German 10-year Bond Auction.
  • 12:30 US Trade Balance. Exp.  -48.5B.
  • 14:00 US Wholesale Inventories. Exp. +0.4%.
  • 14:30 US  Crude Oil  Inventories. Exp. -1.3M.
  • 17:00 US 10-year Bond Auction.
  • 18:00 FOMC Meeting Minutes.

For more events and lines, see the Euro to dollar forecast

EUR/USD Sentiment

  • Eurogroup meeting ends on disappointing note: This week’s  Eurogroup meeting of finance ministers was supposed to take concrete steps towards  implementing the decisions agreed to at the EU Summit. However, no agreement was reached on a crucial issue – the use of rescue funds to intervene in bond markets and lower Spain and Italy’s borrowing costs,which are threatening to spiral out of control. The finance ministers did agreed to extend Spain’s deadline to reach budget targets to 2014, and stated that EUR 30 billion  in  aid would be made available to Spanish banks by the end of July.
  • Will Fed  introduce QE3? The markets will be closely watching what the Fed  reports in the minutes of its most recent policy meeting. The US economic recovery remains sluggish, and high and deep unemployment continues to takes its toll. The Fed is under pressure to take monetary measures to stimulate the economy, and QE is becoming more likely.
  • ESM  hits legal snag: The European Stability Mechanism, which is the Euro-zone’s  rescue fund, was supposed to come into effect on July 1. However, the  German Constitutional Court has delayed  its decision on whether the ESM  complies with German law. ESM cannot go ahead without German support, so for now, the ball  is in the  hands of the court.
  • Euro  slumps following ECB rate cut: Last week, the European Central Bank cut its benchmark lending rate to a new historic low of 0.75% and also eliminated the deposit rate from the previous 0.25%. The move came after more QE from the UK and a rate cut from China. The impact on the euro from these moves by central banks was quite negative: a drop of over 100 pips in a short time. Draghi added fuel to the fire by saying that downside risks have materialized. He called the ESF unusable and stated that ESM is the preferred mechanism for relief funds.
  • Spanish woes  continue: Spanish yields are on the rise once again and have crossed the dangerous 7%, line, after yet another bad bond auction. The 8 holes in the aid package are causing quite a lot of trouble. The government wants to cut another 30 billion euros in order to satisfy markets, but this isn’t applauded, to say the least.
  • Italy to join  bailout bandwagon?: Italian PM Mario Monti has asked for help from Germany and the ECB as the situation worsens. The Euro-zone’s third largest economy is suffering from a problematic banking system, and GBP is contracting. This may explode later on. Here is more about a potential Italian bailout.