EUR/USD dipped to new lows but eventually closed the week at similar levels to the previous week. While Greece avoided an immediate default, but the release of the aid tranche is still awaiting. Will the Eurogroup approve it now? This isn’t certain. Apart from the Eurogroup meetings, Flash PMI’s, and the German Ifo Business Climate are the highlights of this week. Here is an outlook for the highlights of the week and an updated technical analysis for EUR/USD.
Doubts about releasing aid for Greece come due to the public disagreement between the IMF and the EU, as the IMF wants EU governments to accept losses – some politically unacceptable. Could the IMF leave the Greek program? There are some signs.The euro-zone economies contracted again in the third quarter of 2012, officially entering a recession. GDP declined by 0.1% in light of the austerity measures in southern Europe and the weakening global economy. Germany and France continued growing, yet at a very slow pace.
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EUR/USD Technical Analysis
€/$ started the week sliding on the downtrend channel (discussed last week). It then recovered and flirted with the 1.28 resistance line before retreating and closing at 1.2742.
Technical lines from top to bottom:
1.3170 worked very well as a double top during September 2012 and is now the top frontier of the range. A failure to get closer to this line shows that the pair has limited momentum. 1.3140 was the high of October and is minor resistance before 1.3170.
1.3080 capped the pair in September and then again in October. 1.3030 provided some support at the same period of time. Both are minor in comparison with the next line.
The very round 1.30 line was a tough line of resistance for the September rally. In addition to being a round number, it also served as strong support. It recently worked as a battleground and the pair is now well below this line. It is closely followed by 1.2960 which provided some support at the beginning of the year and also in September and October – the line is weaker now.
1.2880 provided some support in October and now switches to resistance. It proved to be a backstop on the initial false rally after Obama’s victory. 1.28 is the bottom border of the range, and was eventually left behind. The pair fell to this low in September and later got close to it.
1.2750 capped the pair after the Greek elections and also had a similar role in the past. It is now a pivotal line in the range. 1.2690 was the new low after the November breakdown, and also provided support on a second downfall attempt in November 2012.
1.2624 was the low in January and now serves as weak support,1.2590 was a cap during August, before the pair surged.
Below, the round number of 1.25 is not only of high psychological significance (USDEUR 0.80) but also worked as support during the summer of 2012. 1.2440 is already a stronger line, that was a clear separator during August.
Below, 1.2390 was resistance in July. 1.2250 is lower support, also at that time.
1.2140 is a very strong line that separated the low range from the rest, and the 2012 low of 1.2042 is the last line for now.
Downtrend Support Strengthening
The clear break of the narrowing channel to the downside, led to a continued downfall. We can now begin seeing the pair trading along downtrend support, that began in mid-October, and the recent slide showed that this pair is strong.
The pair had a week of consolidation. We could see a resumption of downfalls now. More technical analysis from James Chen: EUR/USD Strong Bearish Bias Continued
I turn from neutral to bearish on EUR/USD
The divide between the EU and the IMF is quite serious, and Germany may face a tough choice: losing money via debt restructuring (aka OSI) or a disorderly haircut via a Grexit. A release of the next tranche is partially priced in, so there is downside risk here. In addition, PMIs will likely continue weighing on the pair, as well as the clash between Israel and Hamas, which is already being felt in curr....
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