FUNDAMENTAL ANALYSIS
The euro fell back below 1.3400 against the dollar on Tuesday after a report said Greece is trying to avoid the involvement of the International Monetary Fund (IMF) in its bailout package. The inclusion of the IMF would force Greece to comply to severe austerity measures.
The EU is still far from being relieved of the speculative pressures on the euro. The renewed risk-aversion could bring the euro towards 1.3000 in the short term.
The situation is still not clear as to whether or not Greek will receive any aid and the financial status of other European countries such as Spain and Portugal is raising questions. The downgrade of Portugal’s credit rating by Fitch Ratings last week is an indication of the persistent uncertainty in the eurozone.
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.
TECHNICAL ANALYSIS
The 4-hour chart shows a reversal of the short term up trend. The EUR/USD failed to move above 1.3600 and fell down below 1.3400. The most probable move is a re-test of last week's 1.3267 low. A move beyond that point would open the way down to the 1.3000 psychological 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. Given the fundamental outlook, we expect the price to reach the 1.3100 region and then consolidate in the medium to long term.
Resistance levels:
- 1.3400
- 1.3500
Support levels:
- 1.3354
- 1.3267
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