EUR/USDcontinue to move upwards, hitting three-week high as the couples benefit from German data unexpectedly strong. Ifo Business Climate index, the leading economic indicators, rose to 101.4 points last month. Reading surprised the market, which had forecast a drop to 99.6. European leaders meet in Brussels for the second day of the EU summit, as talks on a new budget for the Euro-zone has convinced so far. There is no scheduled release out of the U.S., as the market took advantage of the long holiday weekend.
EUR / USD Technical
Asian session: The euro / dollar rose, hitting its highest level around 1.2890. This pair is testing the 1.29 line in the European session.
Current range: 1.2880 to 1.2960.
Further levels in both directions:
Below: 1.2880, 1.28, 1.2750, 1.2690, 1.2624, 1.2590, 1.25, 1.2440, 1.2390, 1.2250, 1.2140 and 1.2042.
Above: 1.2960, 1.30, 1.3030, 1.3080, 1.3140, and 1.3170.
1.2880 is providing weak support as the pair tests 1.29. 1.28 is stronger.
1.2960 is the next line on the upside.
Euro/dollar higher on strong German business climate data– click on the graph to enlarge.
EUR/USD Fundamentals
7:00 German Final GDP. Exp. +0.2%. Actual +0.2%.
9:00 ECB President Mario Draghi Speaks in Frankfurt.
9:00 Italian Retail Sales. Exp. +0.3%. Actual +0.1%.
9:02 German Ifo Business Climate. Exp. 99.6 points. Actual 101.4 points.
Day 2: EU Economic Summit.
14:00 Belgium NBB Business Climate.
For more events and lines, see the Euro to dollar forecast
EUR/USD Sentiment
Positive European data boosts euro: The euro has had a splendid week, gaining over one cent against the greenback as it tests the 1.29 line. Positive PMIs and unexpectedly strong German business climate data have helped the continental currency flex some muscle. However, the euro remains vulnerable, as the Greek crisis is unresolved and European leaders argue over a new budget for the EU. If agreements can be reached in these two areas, we could see the euro continue to rally.
Budget Clash at EU Summit: European leaders continue to be deeply divided over the EU budget for 2014-2020. The budget is used to help the farming sector and development aid for the bloc’s less developed countries, and comprises only about 1% of the bloc’s GDP. The dispute is between the richer countries, led by the UK, which want to reduce their contributions due to the tough economic climate. Unsurprisingly, struggling members such as Greece, Portugal and Spain are strongly opposed to any cuts. With no set deadline to reach an agreement, we’re unlikely to see a deal reached at this summit.
Fragile ceasefire in Gaza: After a week of heavy fighting, a ceasefire was finally reached between Hamas and Israel late on Wednesday. The violence flared right up to the ceasefire deadline, and there is deep skepticism whether the fragile truce will hold. If the situation stabilizes, Egypt will act as an intermediary for further discussions between Hamas and Israel, such as reopening the crossings between Gaza and Israel.
Greek saga continues as Eurogroup, IMF deadlocked: The Euro-zone finance ministers and the IMF huddled in Brussels earlier this week, but marathon talks failed to produce a breakthrough over what action to take on the Greek debt crisis. The Euro-zone finance ministers want to grant Greece a two-year extension, till 2022, to slash its debt to 120 percent of GDP. Currently, the country’s debt to GDP ratio stands at 176 per cent. The IMF is against the extension, preferring to see EZ member states write off some of Greece’s debt. Without some agreement, the troika cannot give Greece the next tranche of aid, which amounts to some 44 billion euros. The parties will meet again on Monday, and Chancellor Merkel sounded cautiously optimistic that an agreement can be reached. However, even if a deal is reached, it will still have to be approved by the parliaments in several countries. For its part, Greece continues to implement reforms demanded by the troika. These include an overhaul of the tax system, the creation of a committee to supervise budget execution and further privatizations.
Catalan election could lead to calls for independence: With the markets focused on Greece, and Madrid managing without a bailout for now, Spain has not been on the front pages lately. That could change next week, a the region of Catalonia holds elections on November 25. The independence movement is enjoying growing support, as many Catalans are unhappy about propping up other regions while they are forced to make cuts and ask the central government for aid. Catalan Premier Artur Mas called the snap election in protest of Madrid’s refusal to adjust internal payment transfers, and Mas has tried to turn the election into a referendum on independence. However, the latest polls suggest that Mas’ party, the CIU, will not gain enough seats to form a majority. If the polls are wrong, we could see more political unrest and instability in Spain, which has more than enough economic problems right now.
Moody’s downgrades France: Earlier this week, Moody’s credit agency downgraded France from its AAA rating to AA1. The agency followed up with a tough assessment, warning that France’s economic outlook remains “negative”, and that it had doubts that the Hollande government could implement necessary structural reforms and spending cuts. Moody’s also noted that the French economy was at risk due to other struggling Euro-zone members. The downgrade followed a scathing report in the prestigious Economist magazine about the perilous state of the France’s economy, entitled “The time bomb at the heart of Europe”. The French government is fuming over the downgrade and unflattering magazine article, which may well cause investors and companies to think twice before doing business with France.
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