EUR/USD Facing Pressure After Italian Prime Minister Resigns

As we begin the new trading week, EUR/USD has settled down, following sharp losses late last week. The euro is under pressure as Italian Prime Minister Mario Monti announced on Friday that he plans to resign. Monti, who has gained the respect of the markets with his skillful handling of Italy’s debt crisis, stated that he could no longer lead the country without the support of former Prime Minister Silvio Berlusconi’s party. The dramatic development means that Italians will head to the polls early next year. The markets are concerned that the political uncertainty could have an adverse impact on Italy’s weak economy, the third largest in the Euro-zone. Italy is mired in recession, and the loss of Monti’s steady hand at the helm could undermine confidence in the shaky Italian economy.. Immediately following the resignation announcement, the Standard & Poor’s rating agency was quick to state that it was concerned whether the new Italian government would continue to practice austerity, and warned that it could lower Italy’s credit rating if the economy does not improve in 2013.

In Germany, the Bundesbank lowered its growth forecast for the Euro-zone’s largest economy. In its semi-annual report, the Bundesbank stated that it expects GDP to grow 0.7% this year and a negligible 0.4% in 2013. Earlier this year, the powerful central bank had predicted GDP growth of 1% in 2012 and 1.6% in 2013. On a positive note, the report stated that the economy should expand by a respectable 1.6% in 2014. The markets were pleased with US employment numbers. Non-Farm Employment Change dipped in November, but came in well above the forecast. As well, the US unemployment rate dropped to 7.7%, its lowest level since February 20o9. However, Prelim UoM Consumer Sentiment had a weak release, as the important consumer indicator dropped to 74.5 points, a four-month low. The market estimate stood at 82.4 points.

Back in Europe, German Industrial Production slumped badly, posting its worst numbers since February. The key indicator fell 2.6%, disappointing the markets which had predicted a modest decline of 0.4%. In today’s releases, Italian and French Industrial Production disappointed, falling well below the estimates. In today’s releases, Italian and French Industrial Production both disappointed, falling well below the estimates. It is a quiet day in the US, with no scheduled releases today.

EUR/USD for Fri, Dec 7, 2012

EUR/USD for Mon, Dec 10, 2012

EUR/USD Dec 10 at 13:00 GMT
1.2914 H: 1.2920 L: 1.2886

S3 S2 S1 R1 R2 R3
1.2750 1.28 1.2880 1.2960 1.30 1.3030

EUR/USD Technical
EUR/USD posted some sharp losses at the end of the trading week, as the pair gave up the gains it had posted earlier in the week. On Friday the pair lost ground, testing the support level of 1.2880. The pair rebounded at the end of the European session, as it pushed back across the 1.29 line, moving close to the resistance line at 1.2960. In Monday’s Asian session, the Euro/dollar was quiet, as the pair consolidated at 1.2895. The pair has edged higher in the European session, moving back above the 1.29 line. The volatility which marked last week is nowhere to be seen as EUR/USD is very steady as we begin the new trading week.

•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 and 1.2250.
•Above: 1.2960, 1.30, 1.3030, 1.3080, 1.3130, 1.3170, 1.3290 and 1.34.
•1.280 is providing weak support as the pair has moved slightly above 1.29. 1.2880 is stronger.
•1.2960 is the next line on the upside.

EUR/USD Long – Short Ratio

EUR/USD kept the market busy last week, as the pair posted some impressive gains followed by sharp drops. Market sentiment has shifted towards a downwards bias, and we could see EUR/USD drop back below the 1.29 line. If the pair breaks through support at 1.2880, and could continue to fall towards the 1.28 line. At the same time, there is also room for an upside move, with the next resistance line at 1.2960.

Today’s Expectations

There are no scheduled US releases today, so the European releases will be especially significant. French and Italian Industrial Production figures were weak, as both fell well short of the market estimates. These disappointing figures, along with a poor Investor Confidence reading, underscore a host of disappointing data out of the Euro-zone recently, German Trade Balance beat the forecast, but this release has less importance than today’s other readings. So, we could see negative market sentiment result in the euro losing some ground against the dollar.

EUR/USD Fundamentals
• 7:00 German Trade Balance. Estimate +15.9B. Actual +15.2B.
• 7:45 French Industrial Production. Estimate 0.4%. Actual -0.7%.
• 9:00 Italian Industrial Production. Estimate -0.2%. Actual -1.1%.
• 9:30 Sentix Investor Confidence. Estimate -16.2 points. Actual -16.8 points.
(All release times are GMT)

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