EUR/USD continues looking for a direction, continuing a trend we saw throughout last week. The pair remains very close to the 1.35 line in Monday’s European session. The markets are anxiously waiting as Congress makes a last-minute attempt to solve a budget impasse that threatens to close down the US government. There is also political intrigue in Europe, as the Italian government collapsed after ex-PM Silvio Berlusconi pulled his ministers out of the coalition government. In economic news, Monday has a light schedule. German Retail Sales posted a gain of 0.5% but fell well short of expectations. In the US, the sole release is Chicago PMI, with the markets expecting the index to rise in August.
Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar.
EUR/USD Technical
- In the Asian session, EUR/USD showed some movement, touching a low of 1.3478 and consolidating at 1.3489. The pair is trading just below the 1.35 line in the European session.
Current range: 1.35 to 1.3570.
Further levels in both directions:Â 
- Below: 1.3500, 1.3460, 1.3415, 1.3325, 1.3240, 1.3175, 1.31, 1.3050 and 1.3000.
- Above: 1.3570, 1.3650, 1.3710, 1.3800, 1.3870 and 1.3940.
- On the downside, the round number of 1.35 continues to be tested. 1.3460 is next.
- The September peak of 1.3570 is getting stronger as resistance.
EUR/USD Fundamentals
- 6:00 German Retail Sales. Exp. 0.9%, Actual 0.5%.
- 9:00 Eurozone CPI Flash Estimate. Exp. 1.3%, Actual 1.1%.
- 9:00 Italian Preliminary CPI. Exp. 0.3%, Actual -0.3%.
- 13:45 US Chicago PMI. Exp. 54.5 points.
* All times are GMT.
For more events and lines, see the Euro to dollar forecast.
EUR/USD Sentiment
- US faces budget impasse: The US government will find itself without funds to operate if Congress fails to break the budget impasse on September 30, the last day of the current financial year. If that happens, non-essential government services would be forced to shut down. However, this crisis, if it continues, will pale in comparison to that of the debt ceiling, which must be resolved in the next two weeks. Otherwise, the US could default on bond payments. A default, even a “technical†one, could shake the entire financial world.
- Italian government collapses: The Berlusconi saga, which seems to never end, flared up again on the weekend, as ex-PM Silvio Berlusconi pulled out of the coalition government led by Enrico Letta. The flamboyant Berlosconi urged Letta to dissolve parliament and call new elections, but Letta has opted to seek a vote of confidence on Wednesday, hoping to keep his battered coalition together. Italian politics are often full of surprises and twists, and we could be in for quite a show this week.
- Octaper seems less likely: Apart from the NFP, the market prices the chances of a reduction in bond buys in October according to the Fed’s sentiment. FOMC member James Bullard told us that the decision not to taper QE in September was a close call, and that tapering in October is certainly possible. However, consequent FOMC speakers poured some cold water over this option. It’s important to follow Rosengren and especially Dudley.
- Another LTRO?: ECB president Mario Draghi opened the door to another lending program to banks – seen as indirect QE by some. The two LTRO programs introduced nearly two years ago are being gradually repaid, and this reduces the excess liquidity in the system. More loans to banks mean more euros in the markets – a euro negative. However, this type of QE does not necessarily have a negative impact on the euro, as we’ve seen in the past.
- German coalition talks could last for a long time:: As widely expected, Chancellor Angela Merkel was re-elected to a third straight term in convincing style. Merkel’s conservative bloc steamrolled to victory but failed to win an absolute majority, so she is now negotiating a coalition with either the big opposition SPD party or the smaller Greens. Given the past, this will take time. The outcome is likely to be a more pro-European government, which is good news for the Euro.
A recent technical analysis: EURUSD Could Move Above 1.3600 – Elliott Wave Forecast
