Euro/dollar reached out to new highs after the Greek elections but couldn’t hold on to them, eventually ending lower. The EU summit is the main event of a busy week, and hopes are high. Will we see another disappointment that will send the pair lower? Here is an outlook for the upcoming events and an updated technical analysis for EUR/USD.
Spanish yields made new records and they stabilized thanks to refreshing German flexibility: the EFSF bailout fund will be able to buy bonds directly. The exact manner of how this will work is still to be seen. Spanish stability is also critical for Italy. Greece managed step back from the headlines after pro-bailout parties won the elections and formed a new government. However, Greece is far from meeting the targets, and a renegotiation of the terms may lead to a third bailout, if not the dreaded Grexit. Europe is not alone in its troubles: also the US economy is struggling and no magic QE3 is in sight.
EUR/USD daily chart with support and resistance lines on it. Click to enlarge:
* All times are GMT
EUR/USD Technical Analysis
€/$ kicked off the week with a nice weekend gap and hit a new level of 1.2748. This later became a stubborn line of resistance. After the Greek euphoria passed, the pair fell under 1.26 and made another attempt to break higher. After this failed, it found support at 1.2520 before closing at 1.2565.
Technical lines from top to bottom:
Note that some lines have changed since last week. The round number of 1.30 was a tough line as support, and pro-bailout victory in Greece could challenge this line. 1.2960 is close by, after providing some support before the bigger fall.
1.29 provide support in May and is weak resistance now. 1.2873 was a historic line remains strong . 1.2814 is now stronger after being a clear line separating ranges in May 2012.
1.2750 capped the pair after the Greek elections and also had a similar role in the past. 1.2670 was a double bottom during January and was the high line of the recovery before the Greek elections in June.
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, and it is key support now. 1.2440 provided support for the pair at the same time.
It is closely followed by 1.24. It provided some resistance in June 2010 and is now minor support. 1.2286 is a new minor line of support after being the swing low in June 2012.
Further below, 1.2330 is another historical line after being the trough following the global financial meltdown in 2008. The new 2012 low of 1.2288 is minor support now.
1.22 is minor support below, 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.
The round number of 1.20 is of course highly important in the psychological level. Below, the 2010 trough of 1.1876 is apparent, before the launch value of the euro at 1.17 to the dollar in 1999.
Broken Uptrend Support
As the graph shows, the pair traded alongside an uptrend channel. This has been broken now. It should be noticed in addition to the regular lines.
I remain bearish on EUR/USD
High hopes towards the EU summit may underpin the pair at first. Given the past, there is a high chance of disappointment. Nothing has been solved in Spain – the assessment about the funding needs of banks are probably short of mark and will be revised higher. Italy’s pro-reform government is unstable of late and will find it hard to make new decisions. Greece finally has an elected government, but the trouble is far from over. Even Germany, which certainly enjoys the safe haven status within the zone, is already feeling the economic contagion.
The dynamics in the US have changed as well: as only a catastrophe might move the Fed to QE3, the worsening conditions over there just boost the dollar as a safe haven. All in all, European weakness and US weakness help the dollar. Positive news on both sides of the Atlantic is needed for the pair to rise, and this is hard to find.
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