EURUSD Analysis 11th July – FOMC Minutes Key Event Risk

Euro/Dollar analysis – (forex-fx-4x 11th July)- Asian stock markets dropped overnight, taking the bearish sentiment from Wall Street, on concerns based around the European crisis and earnings.  Japan’s Nikkei shed around 0.5% with the Hong Kong Hang Seng experiencing similar downside.  European stock markets have also opened lower on Wednesday with the UK FTSE trading around 0.50% down and the Stoxx Europe 600 index down 0.60%.

EURUSD has dropped to a fresh two-year low following a delay from the Constitutional Court in Germany; the court has delayed a decision on the ESM (Eurozone permanent rescue funding programme). The ESM was supposed to replace the EFSF (European Financial Stability Facility) temporary fund but this latest setback could  take a while to rectify.   Any prolonged delay could have far reaching implications a major downturn in sentiment towards the euro-zone.

The FOMC minutes are seen as the primary event risk today and the Fed is widely expected to reveal a dovish tone and bias towards further easing. Kathy Lien, from BK Asset Management, advised that “there is a good chance that tomorrow’s FOMC minutes will show a great deal of pessimism within the central bank, which would build the case for QE3 and be negative for the dollar.” and that the “FOMC minutes could help shape the market’s expectations for QE3”.

EURUSD Technical Analysis Overview

• The EURUSD 4 hour chart shows price moved as high as the 20 period SMA, prior to breaking below the previous support level and creating a new two year low.
• There has not been any major follow through and any hesitation around this area runs the risk of another upside test and short squeeze.
• Initial potential resistance for EURUSD is seen around 1.2330 if price can once again move above the 20 period SMA. Further to this, a clearly defined confluence level of previous swing low and 38.2% Fibonacci retrace is noted around 1.2400.  Any corrective move higher may see some kind of resistance around here.
• Initial support could be found at the 1.2234 level which is the weekly (and multi-year) euro/dollar low.
• Any sustained move below this weeks low could find market participants waiting for a potential move towards the 1.2000 area and searching for short term counter-trend opportunities. The 1.1875 prominent swing low, from June 2010, is a longer term potential target on sustained downside.