EUR/USD technical analysis round-up: July 29th

The euro was falling in value against the US dollar today, trading at 1.4290 as of around 8:40 A.M., GMT.

The EU’s single currency is down 0.304% on the day and has reached a session high of 1.4364 with a low of 1.4258 so far.

Renewed worries over the specifics of the proposed rescue package for Greece may be the cause for a  weakened euro today.

The US dollar may also be strengthening slightly, despite the continuing concern that the US debt ceiling may not be raised by August 2nd. The US dollar has been under pressure as international investors began to price in a possible US sovereign ratings downgrade.

Earlier this week, the greenback slid against developing market currencies, sending Washington a message that the reach of the US debt impasse stretches far and wide, but it recovered in New York trading today as European fiscal worries resurfaced.

Across the Atlantic, remarks made by European Central Bank President Jean-Claude Trichet to France’s Le Point magazine didn’t do much to ease worries over the euro. Mr. Trichet defended the strength of the euro as a currency, and said it had “never been under threat,” even as the euro zone’s financial stability was threatened by Greece’s fiscal problems.

“The euro, as a currency, is sound and credible, and is not affected by the pressures on sovereign risks,” Mr. Trichet said.

Nevertheless, ratings agency Standard & Poor’s downgraded Greece one notch and placed a negative outlook on the country.

This is what the analysts had to say about the EUR/USD currency pair in the near-term:

– “The movements of the euro from hereon out will be dependent more on the contagion risk to Italy and Spain than developments in Greece,” Thanos Papasavvas, a fixed income and currency strategist with Investec Asset Management said.

“If the US were to default on its loans, there would be significant carnage in both the currency and equity markets,” Kathy Lien, director of global research and analysis GFT Forex, remarked. “Think in terms of at least another 5 percent slide in the greenback.”

Even though a downgrade would be very bearish for the US dollar, a buyers’ strike in US Treasuries is unlikely, according to Lien, given that central banks with foreign-exchange pegs still need to buy US Treasuries and in turn US dollars to prevent a rapid appreciation of their currencies.

If no deal is reached by the weekend, analysts say the chance of a deal being reached at all is slim. “Instead of carrying the risk into August 2nd, foreign investors will most likely reduce their holdings of US dollars in anticipation of a US downgrade,” Lien concluded.

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