Euro zone Debt Crisis and EUR/USD Outlook – What’s New?

October 23, 2012 in Forex Analysis

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EUR/USD had a strong fall, which as of now we will avoid to term as “free fall”. The pair had gone to 1.3139 but could not retest the previous high of 1.3172. This brings the first indication that further consolidation may take.

Before analyzing the current price action technically, let’s try to see what  what other factors are there which can affect the market sentiments as far as EUR/USD is concerned.

EUR/USD Daily Chart:

EUR/USD Daily Chart October 24, 2012

Euro zone Debt Crisis

Debt crisis and Euro zone’s efforts for rescue, as a whole, has been the pivot around which the whole market sentiments have been rotating. A small tick of news here and a strong jump of optimism there, another tick and whole optimism hides behind the walls of sheer pessimism. The old story of the market movements that ultimately what wins is the sentiments over any technical or fundamental analysis (at least in the short-term).

Debt Crisis – What is New?

The latest development in the series has been opposition raised for the very legalities of ESM or European Stability Mechanism. The complaint was raised to the highest court of European Union by Irish Parliament’s Independent member Thomas Pringle.

Pingle’s argument involve Article 125 of the treaty.

The court decision on this should be reached by the end of 2012.

The ruling in this matter may very well go in the favor of the ESM and bailout efforts as the earlier decision of  Federal Constitutional Court of Germany came in September but still it adds one more hurdle in the actual execution of the rescue plans. And it brings in another force which bring pessimism in the high tidal ocean of market sentiments.

Other Economic Events

Euro – Yesterday:

The preliminary report of consumer confidence from Euro zone was slightly better though not much changed from the previous release. The consumer confidence reading came out as -25.6 against the previous -25.9

Euro and U.S. Dollar Today:

Euro zone:

Today’s main economic releases Purchasing Manager Index (PMI) from Euro zone and Germany and IFO business climate, assessment and expectation reports from Germany. All these economic releases are between GMT 7:28 to 8:00.

U.S.:

Today’s main economic releases are Markit manufacturing PMI (prelim) at GMT 12:58 and new home sales at GMT 14:00. Another more important event is interest rate decision at GMT 18:15 but no change is expected in the interest rates. Fed’s Monetary Policy Statement and press conference may need some attention at GMT 18:15.

EUR/USD Price Action and Technical Outlook:

1) As mentioned above that the failure of retesting the previous 1.3172 and fall from 1.3149 indicate the possibilities of further downward consolidation.

2) If we check the weekly chart of EUR/USD, it shows a sideways move for past 6 weeks, after the pair had broken the resistance of the mid-term price action channel very strongly. We also see that the price has been getting support just below 5-week EMA (the green EMA line in the following chart). The price action is well above 200-day Moving Average.

EUR/USD Weekly Chart

EUR/USD Weekly Chart October 24, 2012

EUR/USD- What To Expect?

A break below 1.2950 should bring further consolidation towards 1.2920 first and then possibly towards the 55-day EMA support near 1.2880/1.2890. This level is just above the low of previous weeks candle. Any decisive break below these supports may bring further deeper moves towards the 38.2% retracement of the recent overall upward move.

EUR/USD Retracement?

EUR/USD daily chart 382 retracement

While saying all this, as we all know that the market is very sensitive right now and any small tick here and there may act as a big force and bring some unexpected moves. The weekly MACD still stays above the signal line and with a wide gap. There has been a loss of momentum but still some further upward gains can be expected after any possible consolidation:

EUR/USD Weekly MACD:

EURUSD weekly MACD

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