Euro dollar is consolidating its recovery, partially enjoying the dollar’s weakness across the board. The dollar suffers from the credit rating warning from Moody’s as well as the stronger talk about QE3. A big bulk of economic data is expected from the US. It isn’t too rosy in Europe, as yields are going once again.
Here’s a quick update on technicals, fundamentals and what’s going on in the markets.
EUR/USD Technicals
- Asian session: A very active session saw the pair storm higher, and bounce off the 1.4282 line. Exactly there. It slid lower since then.
- Current range 1.4160 to 1.4282.
- Further levels in both directions: Below  1.4160, 1.4120, 1.4070, 1.3950, 1.3838, 1.3750, 1.37, 1.3570, 1.3440.
- Above: Â 1.4220, 1.4282, 1.4375, 1.4450.
- The historic line of 1.4282 proved to be at its strength once again. 1.4220 is only minor resistance now.
- 1.4160 and 1.4030 are the main cushions below.
Euro/Dollar pressured lower  – click on the graph to enlarge.
EUR/USD Fundamentals
- 9:00 European CPI. Exp. +2.7%. Actual 2.7%. Core CPI. Exp. +1.5%. Actual +1.6%.
- 12:30 USÂ Unemployment Claims. Exp. 413K.Â
- 12:30 USÂ Retail Sales. Exp. -0.1%. Core sales exp. +0.1%.
- 12:30 US PPI. Exp. -0.2%. Core PPI exp. +0.2%.
- 14:00 US Business Inventories. Exp. +0.7%.
- 14:00 Federal Reserve Chairman Ben Bernanke continues testifying.
* All times are GMT.
For more events later in the week, see the Euro dollar
EUR/USD Sentiment
- Moody’s warns: As negotiations between Democrats and Republicans remain stuck, creidt rating agency Moody’s warns the US of a downgrade. This added pressures on the dollar. In the US, agencies have a helping role. Regarding Europe, the agencies are in overcompensating mode.
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QE3 Speculation Intensifies: In his official testimony, Bernanke said that all options are on the table. If deflation returns, QE3 is possible. He did say a lot of other things, including an exit strategy, but the dollar was sold off across the board. This joins thehe FOMC meeting minutes. They have shown that some members are thinking of QE3 if necessary. This is different from the tone heard in Ben Bernanke press conference and fits with the terrible Non-farm Payrolls in the past two months. On the other hand, the minutes did lay out a plan for an exit strategy in detail. The chances of QE3 are still slim. EUR/USD rose on this news, but it didn’t last.
- Creative solution for Greece:Â While the focus is on the US, intense discussions are taking place in Europe regarding a solution for Greece. One option is allowing a Greek default, and using the bailout fund to allow Greece to perform mass buy backs of bonds. This is the the transfer union that many northern European countries fear.
- Imminent default for Greece: This is less of a speculation any more. The Dutch finance minister leads the way once again with statements of an upcoming “selective defaultâ€. Apart from Jan Kees de Jager, also George Soros says it may be inevitable. This was partially priced in. It is “sell by the rumor, continue selling by more rumors†at the moment.
- Italian and Spanish bond are on the rise again: Spanish 10 year bond yields are 2% higher, now at 5.95%. Very dangerous levels. Italian yields are over 3% higher at 5.7%, an area considered dangerous for Spanish yields just last week. Are Spain and Italy up next for a credit downgrade?
What Europe needs is a rate cut. Now.
