EUR/USD broke out of yesterday’s (June 27th) narrow range, as the market mood soured prior to today’s EU Summit. The European leaders have plenty of pressing topics to discuss, starting with the alarming fiscal crises in Greece and Spain. As with other grandiose meetings, there is a lot of skepticism if any concrete measures will be announced. There was more bad news as German CPI and employment figures were below the market estimates. There are several key releases today, including a 10-y bond auction in Italy, and US Unemployment Claims.
Here’s an update on technicals, fundamentals and what’s going on in the markets.
- Asian session: Euro/dollar moved upwards, crossing the 1.25 line and reaching a high of 1.2525. The pair then consolidated at 1.2513. Euro/dollar has fallen sharply in the European session, , and was trading at 1.2432.
- Current range: 1.24 to 1.2440.
- Further levels in both directions:
- Below: 1.24, 1.2330, 1.2288, and 1.22.
- Above: 1.2440, 1.2520, 1.2587, 1.2660, 1.2760, 1.2814 and 1.2873, 1.29 and 1.2960.
- The pair broke through 1.2440 as the euro has dropped.
- 1.24 is the next support level. This line has weakened, could be tested if the pair’s downward movement continues.
- 1.2330 is providing strong support.
Euro/Dollar down as markets pessimistic about EU Summit – click on the graph to enlarge.
- 7:55 German Unemployment Change. Exp. +5K. Actual +7K.
- 7:55 German Unemployment Rate. Exp. 6.7%. Actual 6.8%.
- 8:10 Euro-zone Retail PMI. Actual 48.3 points.
- 9:00 Italian Prelim CPI. Exp. 0.2%. Actual 0.2%.
- All Day: EU Economic Summit.
- Tentative: Italian 10-year Bond Auction.
- 12:30 US Unemployment Claims. Exp. 385K.
- 12:30 US Final GDP. Exp. +1.9%.
- 12:30 US Final GDP Price Index. Exp. +1.7%.
- 14:30 US Natural Gas Storage. Exp. 55B.
- 15:30 US FOMC Member Sandra Pianalto Speaks.
For more events and lines, see the Euro to dollar forecast
- Markets pessemistic about EU Summit: The EU Economic Summit begins today in Brussels, and all 27 EU members will be in attendance. With the Euro-zone in turmoil, one would have thought that it would be prudent on the part of the leaders to announce some tangible steps, to help restore confidence and calm the jittery markets. Instead, a German government official declared that the summit would not result in any detailed decisions and warned against high expectations. Unsurprisingly, the markets reacted poorly, and the euro dropped quickly and sharply as a result. A grandiose meeting with nothing more than rhetoric and photo-ops could send the euro tumbling some more. See 4 reasons to expect a disappointment.
- German releases continue to disappoint: After last week’s disastrous German ZEW Economic Sentiment release, employment figures disappointed the markets. The number of unemployed people rose by seven thousand, exceeding the estimate of five thousand. The unemployment rate came in at 6.8%, above the 6.7% forecast. German Prelim CPI contracted by 0.1%, while the markets had predicted no change in this month’s reading.
- Spain asks for bailout: As expected, Spain sent an official letter in request earlier this week. Yields on Spanish 10 year bonds continue to rise, and our close to an unsustainable 7%. The bailout is unlikely to be a panacea, given the 8 holes in the aid package. Adding to Spain’s woes, the Moody’s ratings agency downgraded 28 Spanish banks earlier this week. The Spanish government is feeling the heat, and has just passed a new law limiting cash transactions.
- Greek government faces tough challenges: The new Greek government finds itself between a rock and a hard place, trying to comply with its bailout obligations while easing the tremendous economic hardships which the Greek populace is facing. The EU, particularly Germany, will have to show some flexibility on the... and agree to some changes if it is serious about keeping Greece in the EZ. There are discussions of extending the Greek targets, but Greece is likely to miss those as well. The new Greek government is just getting its feet wet, and the last thing the Euro-zone needs right now is further political instability in the country.
- No QE in US as economy zigzags: After the Fed decided not to introduce QE, but did announce that it would extend ..., Bernanke’s words convinced some analysts that QE3 is just one meeting away. However, the mood has significantly changed now. US economic releases continue to disappoint, with Consumer Confidence falling below the market expectation. The Richmond Manufacturing Index also posted a poor reading, plunging to an eight-month low. US Durable Good Orders jumped 1.1%, but Core Durable Goods Orders c....