EUR/USD Nov 30 – Testing 1.30 as Markets Hopeful on

EUR/USD briefly broke above the 1.30 line, as the markets are hopeful that a deal over the fiscal cliff will soon be reached in Congress. President Obama is taking an active role in the negotiations between the Republicans and Democrats, who are expected to reach a compromise despite some strong rhetoric on both sides. US Pending Home Sales were outstanding, jumping 5.2%, which was a five-month high. Economic data out of the Europe was less cheerful, as German Retail Sales dropped by 2.8%, the indicator’s sharpest plunge since September 2011. Euro-zone unemployment rate remained unchanged at 11.7%, matching the market forecast. The trading week wraps up with several releases out of the US, including Chicago PMI.

EUR/USD Technical

• Asian session: Euro/dollar was quiet, with the pair trading around 1.2995. In the European session, Euro/dollar continues to test the 1.30 line.
• Current range: 1.30 to 1.3030.

Further levels in both directions: 

• Below: 1.30, 1.2960, 1.2880, 1.28, 1.2750, 1.2690, 1.2624, 1.2590, 1.25, 1.2440, 1.2390 and 1.2250.
• Above: 1.3030, 1.3080, 1.3140, 1.3170, 1.3290 and 1.34.
• 1.3030 is the next resistance line. 1.3080 follows.
• 1.30 is providing weak support and under pressure. 1.2960 is stronger.

Euro/dollar higher on fiscal cliff hopes – click on the graph to enlarge.

EUR/USD Fundamentals

• 7:00 German Retail Sales. Exp. -0.3%. Actual -2.8%.
• 7:45 French Consumer Spending. Exp. -0.1%. Actual -0.2%.
• 8:00 ECB President Mario Draghi Speaks at French Treasury in Paris.
• 9:00 Italian Monthly Unemployment Rate. Exp. 10.9%. Actual 11.1%.
• 9:00 Italian Quarterly Unemployment Rate. Exp. 10.6%. Actual 10.6%.
• 10:00 Euro-zone CPI Flash Estimate. Exp. +2.4%. Actual +2.2%.
• 10:00 Euro-zone Unemployment Rate. Exp. 11.7%. Actual 11.7%.
• 10:00 Italian Preliminary CPI. Exp. 0.0%. Actual -0.2%. 
• 13:30 US Core PCE Price Index. Exp. +0.2%.
• 13:30 US Personal Spending. Exp. +0.1%.
• 13:30 US Personal Income. Exp. +0.2%.
• 14:45 US Chicago PMI. Exp. 50.7 points.
• 22:00 US FOMC Member Jeremy Stein Speaks.

For more events and lines, see the EUR/USD

EUR/USD Sentiment

• President Obama weighs in on fiscal cliff: Seeking to reassure nervous markets both in the US and abroad, President Obama stated that his administration and Congress will take steps to avoid the looming fiscal cliff, which threatens to undermine the fragile economic recovery. Obama said little more than ““something will be done”, but the markets were happy to hear the president declare that the government will take steps to avoid the crisis. Both Republicans and Democrats have employed some tough rhetoric, but cooler heads will likely prevail as the crisis threatens to undermine the fragile US recovery. The Congressional Budget Office has warned if no action is taken, the US economy would contract by 0.5% in 2013.
• Greece banks oppose buy-back scheme: After the initial euphoria over the much-heralded agreement between the Eurogroup and the IMF over Greece’s debt, the markets seems to have lost some enthusiasm. The latest concerns reflects the lack of detail in the agreement as to how Greece will implement the reforms needed to meet its new fiscal targets and receive aid. For example, the first installment of aid, scheduled for delivery in December, appears to be linked to the success of the buy-back scheme stipulated in the agreement. However, Greek banks are opposed to the buy-back program, arguing that it will jeopardize their chances to recapitalize. If this agreement unravels, we could see the euro take a sharp turn downwards.
• Eurogroup, IMF ink deal on Greek debt: Earlier this week, Euro-zone finance ministers and the IMF hammered out a deal over Greek’s long-term debt earlier this week. Under the agreement, the troika has agreed to reduce Greece’s debt by 40 billion euros, lowering it to 124 per cent of Greek GDP by 2020. To reduce the debt, the Eurogroup agreed to lower interest rates on loans to Greece, and give Greece 11 billion euros from profits of the ECB purchases of Greek government bonds. As well, the euro-zone finance ministers agreed to help Greece purchase such bonds from private investors. The agreement should clear the way for Greece to receive additional bailout funds, starting next month. However, the question remains whether zone member states will eventually have to write off some of their Greek loans. Germany and other members are staunchly opposed to any such move, and time will tell if Greece can successfully find its financial footing.
• Greece hopeful that help is on the way: News of an agreement over Greece’s debt out of Brussels was cheered by the beleaguered Greek government. Prime Minister Antonis Samaras appeared on national television late Monday night to celebrate a “new day” for the struggling country. Samaras will surely be counting down the days to December 13, the scheduled date of the next installment of bailout funds. Greece has enacted painful cuts and reforms as part of the troika’s demands, and is impatiently waiting for more bailout aid. However, the government knows it will have to make good on its commitments in order to receive each payout, and if the past is any indication, Greece’s road to recovery is likely to be a bumpy one, even with the much-needed rescue funds.
• Fed may implement further QE: It is not just politicians and the markets that are closely following the fiscal cliff crisis, which threatens to undermine the fragile US economic recovery. For its part, the Federal Reserve has taken the fiscal cliff into account by purchasing $40 billion in mortgage-backed securities each month. With this program (Operation Twist), slated to terminate at the end of the year, the Fed will have to decide at its next meeting whether to extend this program into 2013. Any decision with regard to QE could have serious repercussions on the currency markets, which gives added significance to the next Fed policy meeting.
• Independence drive fades after Catalonian election: Separatists in the Spanish region of Catalonia won regional elections on Sunday, but the ruling CiU party lost seats, complicating plans for a referendum on independence. The results are a victory for the central government in Madrid, which is struggling with an economy in recession and can ill afford further political turmoil. However, the separatists now control two thirds of the local parliament, leaving Prime Minister Mariano Rajoy’s with another political headache which is unlikely to disappear anytime soon.

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