EUR/USD is moving lower, as the markets continue to wait for an official aid request by Spain. Spanish officials say they haven’t yet reached a decision, and in the meantime, yields on Spanish bonds creep higher. In addition, investors are moving to the safety of the US dollar as tensions in the Arab world and between China and Japan rise. There are no scheduled releases out of the Euro-zone. In the US, key releases include Building Permits and Existing Home Sales.
Here’s an update about technical lines, fundamental indicators and sentiment regarding EUR/USD.
- Asian session: Euro/dollar reached a high of 1.3085 and consolidated at 1.3080. The pair has lost ground in the European session.
- Current range: 1.30 – 1.3060
Further levels in both directions:
- Below: 1.30, 1.2960, 1.29, 1.2814, 1.2750, 1.2670, 1.2624, 1.2587, 1.2520 and 1.2460.
- Above: 1.3060, 1.3105, 1.32, 1.3290, 1.34, 1.3437, 1.3480 and 1.3540.
- 1.30 is weakening as support and could break as the pair pushes down.
- 1.2960 is the next support level.
- 1.3060 is an important line of resistance. A break higher could result in a fast rally.
Euro/Dollar down as uncertainty over Spain continues – click on the graph to enlarge.
- 12:30 US Building Permits. Exp. 0.79M.
- 12:30 US Housing Starts. Exp. 0.77M.
- 14:00 US Existing Home Sales. Exp. 4.57M.
- 14:30 US Crude Oil Inventories. Exp. -0.2M.
- Market losing patience with Spain: Spanish officials continue to insist that they need more time to consider the conditions of a bailout request from the ECB. Some analysts have suggested that PM Mariano Rajoy would prefer to push the official request until after October 21, due to internal calculations. An ECB official made it clear that the OMT program will be utilized and isn’t only a threat. As Thursday’s important bond auction draws near, Spanish 10 year bond yields are again very close to the 6% level. Spain’s political and economic problems continue to worsen by the day. Bankia is a black hole for money, and the deterioration of the crisis is causing regional friction to flare up, with louder calls in Catalonia for the region to split from Spain. The streets of Barcelona were flooded with people calling for independence.
- Geopolitical tensions rising: Another bombing in Kabul against Western targets joined many demonstration in various Arab countries against the US after a film insulting the prophet Muhammad circulated. In China, demonstrations against Japanese targets forced a closing down of Japanese factories. The background is the purchase of disputed islands by the Japanese governments. These islands could be used as military bases and impact the sovereignty of the waters around them – waters that could contain useful resources.
- QE3 shock waves still being felt: Last Thursday, Bernanke finally pulled the trigger: the Fed launched an open ended program worth $40 billion dollars of monthly buys of MBS in order to help the housing sector, but also to encourage lending. This comes in addition to extending the low rates guidance to 2015 and continuing the existing Twist program worth $45 billion a month. This aggressive easing was later justified by Bernanke, who also said that the Fed is looking at the general picture of unemployment (including the participation rate). Apart from the yen, all currencies enjoyed gains against the greenback.
- Greece turmoil continues: Various EU officials have hinted flexibility regarding Greece’s repayment schedule, stressing it doesn’t mean more money. Greece’s three coalition partners are still unable to agree on new austerity, as the economy continues its free-fall. Finance Minister Yannis Stournaras stated that the economy will have contracted by a staggering 25% by the time the recession is over. The government has no easy task in trying to implement cuts of 11.5 billion euros, which is necessary in order to received further bailout payments. Talks about a third bailout program became more loud in recent days, as Greece is nowhere close to meeting targets.