EUR/USD continues to trade in a tight range, as the markets continue to focus on events in Greece and Spain. The second round of the Greek election will be held on Sunday, and the outcome could determine whether Greece remains in the Euro-zone. Spain will be getting a handout, but uncertainty remains as the details of the bailout are unclear. To add to this volatile mix, Italian issues remain on the agenda. With a host of releases today, including Retail Sales and PPI out of the US, will we see the pair break out of the current narrow range?
Here’s an update on technicals, fundamentals and what’s going on in the markets.
EUR/USD Technicals
- Asian session: The pair dropped to a low of 1.2474, then retraced, consolidating at 1.2511. The pair has moved upwards in the European session, and was trading at 1.2546.
- Current range: 1.2540 to 1.2587.
- Further levels in both directions: Below: 1.2540, 1.2460, 1.24, 1.2330, 1.22, 1.2144, 1.20, 1.1876 and 1.17.
- Above: 1.2587, 1.2623, 1.2660, 1.2760, 1.2814 and 1.2873.
- The failure of the pair to hold above the all important line of 1.2624 is a worrying sign for euro bulls.
- 1.2540 is fluid, and currently providing weak support.
- 1.2587 is the next resistance line, but 1.2623 is much stronger.
Euro/Dollar trading in tight range – click on the graph to enlarge.
EUR/USD Fundamentals
- 5:30 French CPI. Exp. +0.2%. Actual -0.1%.
- 6:00 German Final CPI. Exp. -0.2%. Actual -0.2%.
- 9:00 Euro-zone Industrial Production. Exp. -1.0%. Actual -0.8%.
- Tentative: German 10-y Bond Auction.
- 12:30 US Core Retail Sales. Exp. +0.1%.
- 12:30 US PPI. Exp. -0.6%.Â
- 12:30 US Retail Sales. Exp. -0.1%.
- 12:30 US Core PPI. Exp. +0.2%.
- 14:00 US Business Inventories. Exp. +0.4%.
- 14:30 US Crude Oil Inventories. Exp. -1.6 million.
- 17:00 US 10-y Bond Auction.
For more events and lines, see the EUR/USD
EUR/USD Sentiment
- Euphoria over Spanish bailout fades: In an emergency session over the weekend, the Eurogroup announced a commitment to support Spanish banks by up to 100 billion euros. However, the precise amount of the bailout package will be determined after the results of independent banking audits are published later this month.There are 8 holes in the Spanish bailout, including the eventual sum of money, the sources and impacts on other countries, including Greece. The initial market optimism has slowly drifted away, yet the Sunday gap is still open. The euro spiked following the announcement, but quickly gave away most of those gains. To further complicate the fiscal situation in Spain, the Fitch ratings agency downgraded the credit rating of Spain’s two largest international banks, Banco Santander and Banco Bilbao Vizcaya Argentaria.
- More Bailouts Coming?: Portugal, Ireland and Greece are all on bailout programs, and all three will have trouble raising any funds on the international bond markets. Cyprus has a large exposure to Greek debt, and could be the next EZ member to join the bailout bandwagon.
- Dark Clouds Over Italy: Italy boasts the third largest economy in the EZ, and the country is in economic trouble. Its debt to GDP ratio is much higher than that of Spain. Italy’s GDP declined by 0.8% in Q1, underlining concerns that Italy might need outside help. The markets may be focused on the crisis in Spain , but clearly Italy cannot hide behind Spain for too long. Italy plans to auction at least 9.5 billion euros ($11.9 billion) of debt this week. The yield on Italian 10-y bonds is already up to 6.3%, which could spell fiscal trouble ahead.
- Little Likelihood of QE3: Fed Chairman Bernanke disappointed the markets with no hints about QE3. As always, he left the door open for any policy, and also mentioned a low risk of deflation. Nevertheless, his talk about a stabilizing housing market and diminishing returns for QE3, lowers the chances for action on June 20th, unless European troubles hit US shores in a horrible manner, but this is still to be seen.
- US recovery in trouble?: Recent US data continues to send mixed signals about the direction of the US economy. The Federal Budget Balance will be released later today, and the markets are bracing for a huge deficit for May. If the reading is worse than the market forecast, investors could react negatively, and the greenback could lose some ground.
- Weekend Elections in Greece: The markets are keeping a watchful eye on the June 17th Greek elections, which are too close to call. The results could well determine whether the country remains in the Euro-zone, and the results may also have a significant impact on world currency markets. However, given the faltering Greek economy, it may not matter who forms the next government. A third bailout for Greece could leave it in the EZ, but an exit is looking more and more certain. Greek pharmacies are unable to supply subsidized drugs, money is being taken out of the banks and the bigger problem is with tax payments: many Greeks are deferring tax payments and this weighs heavily on the state coffers, which are running dry. With Greece mired in deep political and financial crises, winning the election may prove to be much easier than running the country.  See how to trade the Grexit with EUR/USD.
