EUR/USD Oct. 21 – Stays in Channel as Summit Headlines Remain Confusing

Euro dollar continues to trade choppily in a smaller range within the channel. Discussions about the crisis strategy aren’t fruitful yet, and the leaders are still scrambling to get something done, perhaps for a second summit afterwards. The calendar is relatively light, but will some news about a comprehensive solution break before the week ends?

Here’s a quick update on technicals, fundamentals and what’s going on in the markets.

EUR/USD Technicals

Asian Quiet trading under the 1.38 line..
Current range: 1.3725 to 1.38.
Further levels in both directions: Below 1.3725, 1.3650, 1.3550, 1.35, 1.34, 1.3360, 1.3285.
Above: 1.38, 1.3838, 1.39, 1.3950, 1.4030, 1.4160, 1.4282.
Note the downtrend channel which accompanies the pair. It’s getting narrower.
1.3650 is an important cushion for the current range and its role strengthened.
1.38 is only a minor line before 1.3838, which is also becoming weaker.

Euro/Dollar trades in channel - click on the graph to enlarge.

EUR/USD Fundamentals

8:00 German Ifo Business Climate. Exp. 106.3. Actual 106.4. No big surprises here, but still a deterioration.
17:00 US FOMC member Narayana Kocherlakota talks.
17:20 US FOMC member Richard Fisher talks.
19:00 US FOMC member Janet Yellen talks.

* All times are GMT.

For more events later in the week, see the Euro to dollar forecast

EUR/USD Sentiment

EFSF Scrambling: The leaders of Germany and France are trying to come up with something towards the summit on Sunday, October 23rd, before the bigger G-20 summit which begins on November 3rd. According to denied reports, there is a significant gap. One of the ideas on the table is to postpone the summit or have a second one on Wednesday, October 26th. They know that time is running out before the G-20 summit, when The Plan of a Greek default at the beginning of November is set to happen. Currently the long list of confusing reports just adds to the choppiness.
Greek parliament approves austerity again: A two-day general strike, and massive protests of which some turned violent didn’t stop the parliament from approving more austerity. Also in Greece, a report that 200 billion euros had fled the country adds pressure on the banking system, which has a shortage in cash and is exposed to Greek sovereign debt.
France’s rating in danger: After Moody’s slashed Spain’s credit rating to A1, more than expected and Slovakia was downgraded, S&P talks about downgrading France as aid to its leveraged banks looms over Europe’s second largest country.
Trouble in Portugal: Spain’s neighbor has a significant hole in its budget which it is now trying to fix. This sounds too familiar to Greece.
US Situation Improving: The huge leap in the Philly Fed Index was great news, but with the current focus on the debt crisis, it was ignored. This joined the excellent retail sales report from the US convinced many that the US will avoid recession, at least in Q3. QE3 is away from the table, and we’ll probably hear more about that from the 3 Fed officials that will speak late in the day.

EURUSD on the weekly chart

After a downside sharp move that we have seen in the past few weeks, the pair has found a support and has rebounded significantly since then.

As such, we now suspect that wave D is almost complete and that the EURUSD is now trading in the final stages of wave B) running triangle, which we may see completed later this year.

Keep in mind that this B) wave is only a second leg of the corrective move lower started with the the 2008's recession So, once wave B) is done, a sharp sell-off will most probably follow in C) move, below the black wave B!