FUNDAMENTAL ANALYSIS
Despite the France and Germany agreement to back up an EU/IMF Greek bailout, comments from ECB president Trichet questioned the impact of an IMF aid to Europe. As a result, the euro reach a ten-month low by moving below 1.3200.
Adding to the uncertainty is the downgrade of the Portugal's credit by Fitch Ratings on Wednesday.
The economical growth of most EU countries remains subdued. The labour market is still weak throughout Europe, which maintains low wages and reduces spending. Those factors apply a downward pressure on inflation and should prevent any ECB rate hike before the end of the year.
The threat of further credit downgrades from rating agencies commands traders to remain cautious with any long position.
With the Greek saga reaching an end, we expect the EUR/USD to continue its downtrend until significant signs of improvements appear in Europe.
TECHNICAL ANALYSIS
The 4-hour chart shows a breach of the important 1.3447 support level after the price failed to remain above 1.3800 last week. This bearish breakout suggests that the price should continue its way down until it reaches a consolidation level.
The daily chart reveals a breach of the 61.8% Fibonacci level of last year's up move. The way is now clear for the euro to reach the 61.8% expansion level of the current downtrend. We expect the price to reach the 1.3100 region and then consolidate.
Resistance levels:
- 1.3387
- 1.3447
Support levels:
- 1.3265
- 1.3100
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