Euro/dollar suffered from another weak week, falling to levels last seen in over 2 years. An important German survey is the highlight this week, as headlines from the debt crisis continue dominating the scene. Here is an outlook for the upcoming events and an updated technical analysis for EUR/USD.
While euro-zone finance ministers did make some progress in providing aid for Spain, there is still much to be desired. Legal issues in Germany could delay the usage of bailout funds forever. Spain showed everyone that the bank bailout doesn’t really skip the sovereign, and announced a huge austerity program. However, also this failed to lower Spanish yields and just hurt the euro. In the US, the FOMC minutes showed that the appetite for printing dollars isn’t high. All this supports more falls. Will the euro continue grinding lower? Or are we set for a correction?
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EUR/USD Technical Analysis
€/$started the week with a small recovery attempt, but this met the 1.2330 line (mentioned last week). From there, it was all downhill as the pair gradually lost ground, getting close to the critical 1.2150 line.
Technical lines from top to bottom:
We start from lower ground this time. 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. 1.2360 was temporary support in July 2012 but quickly switched to resistance.
Further below, 1.2330 is another historical line after being the trough following the global financial meltdown in 2008. It proved its strength by capping a recovery attempt in July 2012. The now previous 2012 low of 1.2288 is of higher importance now after being reached twice.
1.22 is a round an important line that served as support back in June 2010. 1.2150 is already a very strong line on the downside: it was a clear separator two years ago, when Greece received its first bailout.
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.
1.17 was the launch value of EUR/USD in 1999 and is of historic value. The round number of 1.15 is already more important after it served as support in the mid 2000s.
I remain bearish on EUR/USD
Nothing has been solved in the EU Summit or the Eurogroup meeting. Spain is walking the same dead end path of harsh austerity, and Italy may also need some help soon. Both these large countries are suffering from unsustainable high yields for too long. After the recent elimination of the deposit rate by the ECB, money continues flowing out of Europe.
In the US, the situation is mixed. For example, jobless claims fell sharply, but another figure favored by Bernanke shows that job growth has practically stalled. This environment is perfect for the dollar: the US isn’t a global locomotive, therefore not encouraging risk. So, the dollar is a safe haven. On the other hand, things aren’t bad enough to trigger QE3 that will devalue the dollar. Unless there is something totally unexpected, there is more room on the downside for EUR/USD, in a gradual move.
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