Euro/dollar reached higher resistance but couldn’t follow through, as Spain didn’t follow through and submit an aid request. GDP figures for France and Germany as well as a major German survey are the highlights of this week. Here is an outlook for the upcoming events and an updated technical analysis for EUR/USD.
Doubts about the hinted Spanish aid request crept into the markets, as time passed by and Spain didn’t budge. Talk about growing German opposition to potential ECB bond buys and the uncertainty about Greece continue to haunt markets, especially as the head of the Eurogroup Juncker slipped a remark about Greece staying in the zone “at least until the autumn”. Positive data from the US certainly helped the other side of the pair.
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EUR/USD Technical Analysis
€/$ started the week with a move higher, but found resistance at the 1.2440 line (mentioned last week). It then began deteriorating, finding support at 1.2330, before falling to lower ground.
Technical lines from top to bottom:
The very round 1.30 line is a very important line in case of huge rally. In addition to being a round number, it also served as strong support. 1.29 is also notable on the upside, followed by 1.2814.
1.2750 capped the pair after the Greek elections and also had a similar role in the past. It is now of higher importance. 1.2670 was a double bottom during January and was the high line of the recovery before the Greek elections in June. It also capped the pair at the beginning of July 2012.
1.2623 is the previous 2012 low and remains important despite recent battles over this line. Below, 1.2587 is a clear bottom on the weekly charts but is only a minor line now.
1.2520 had an important role in holding the pair during June, in more than one case, but it’s much weaker now. 1.2440 provided support for the pair at the same time. and worked as double bottom.
It is closely followed by 1.24 that provided some resistance in June 2010 and switched to resistance in July. It is now of higher importance after capping a recovery attempt at the end of July and also at the beginning of August. 1.2360 was temporary support in July 2012 but quickly switched to resistance. It is minor now.
Further below, 1.2330 is another historical line after being the trough following the global financial meltdown in 2008. It’s stronger after working as strong support. It should be closely watched if the pair falls. The now previous 2012 low of 1.2288 is now minor support.
1.22 is now a more serious support line, after serving as such in June 2010. 1.2144 is already a very strong line on the downside: it was a clear separator two years ago, when Greece received its first bailout. Also in July and August 2012, it worked as a separator.
The new 2012 low of 1.2043 is the next line, although it may prove to be weak on a downfall. Next we have the 1.20 line, which is a round psychological figure.
The post crisis low of 1.1876 is the final frontier before lines last seen in the good years. The launch price of 1.17 is the next line.
Uptrend Support Emerging
As the graph shows, the pair is trading above uptrend support that was formed from mid July.
I am neutral on EUR/USD
The slow pace of events in Europe takes its toll on the single currency. Draghi did take a big step forward with an offer for full QE, but Spain probably needs another round of deterioration and more time for the public to prepare before it submits a formal aid request. Spain is also moving slowly, after hinting about such a request, and in the meantime, things are getting worse.
A Greek exit in 2012 is certainly on the cards (see how to trade the Grexit with EUR/USD), but the debt struck country will likely pass the upcoming hurdle of an August 20th bond repayment to the ECB: the ECB will help Greece pay the ECB, and this is supportive for the euro.
In the US, calls for QE from Eric Rosengren were countered by positive data, and the QE3 debate will likely be on hold this week.
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