Euro/dollar made quite a few attempts to recover, but had no success and eventually ended the week on the edge of the high cliff – a historic support line. Will it fall off? Forward looking purchasing managers’ indicators, and various surveys fill the agenda this week. Here is an outlook for the upcoming events and an updated technical analysis for EUR/USD.
Spain drew attention: despite the Eurogroup approval of the bailout (with an extended deficit target) and the German approval of the option to directly recapitalize banks, the troubles in the region of Valencia and the skyrocketing yields eventually hurt the euro, that fell on its own. Also Greece returned to the limelight with an official ECB rejection of its bonds as collateral. Even with more weak US data, the dollar couldn’t beat the euro in the race to the bottom.
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EUR/USD Technical Analysis
€/$ made more than one attempt to break higher, but it couldn’t breach the 1.2330 line (discussed last week). It eventually closed lower, just above critical support at 1.2150.
Technical lines from top to bottom:
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. 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’s stronger after working as strong support. The now previous 2012 low of 1.2288 is of higher importance now after being reached twice.
1.22 is now minor resistance, 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.
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.
I am bearish on EUR/USD
Everything is working against the euro. When pro-euro Angela Merkel doubts the success of the European project, many eyebrows were raised, in addition to the already mounting pressure coming from Spain. Greece and Italy will likely get more attention, but the competition with Spain is tough.
Weak data in the US is still not enough – Bernanke didn’t provide the necessary QE3 hints, and not for the first time. 1.2144-1.2150 is critical. A loss of this area could trigger a downfall.
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