The risk appetite is still improving putting pressure on the greenback since the end of last week. The single currency which made a new 4 years low at 1.1875 last week could creep up above 1.23 again today versus the greenback in spite of the germane disappointing ZEW economic sentiment which has fallen to 28.7 from 45.8 in May while the market was waiting for 42 and Moody's new downgrading of the Greek debt yesterday to junk which effected negatively yesterday on the equities markets before getting back this loses again with current market sentiment improving which continued again today. The market seemed ready enough to continue pushing the single currency lower selling it again below 1.2 versus the greenback before even one correction to bring it back above this psychological level versus the greenback with no new shocks from Europe or Trichet who has assured that the current interest rate is still appropriate and the single currency is a very credible currency last Thursday after the ECB decided to keep the interest rate unchanged again at 1%.

The pair came under strong pressure earlier this month after the increased worrying about Hungarian financial situation because of the debt crisis and the exposure of the European countries banks to the this debt especially after the ECB has warned about the long term debt refinancing in Europe which looks in need of 800 billion euros by the end of 2012 suggesting that the European banks are in need to be ready for facing bad loans following the debt crisis which can reach 123 billion euros for 2010 and 2011 to reach 105 for 2011 and for facing the bad loans from 2007 till 2009 they should be ready with 238 billion euros. The financing problems have seemed ahead from the ECB report showing a serious need for storing stability and injecting funds into the nerves of the European banks too as the European governments which can transfer the problem to the balance sheet of the ECB threating the single currency again.

The pair next resistance should be at 1.234 then 1.244 and 1.2685 which was the recorded previous high of last May and from it the pair fell breaking 1.2143 while the next support should be at yesterday low at 1.2165 then 1.2044 and 1.1954 which was the low of last Friday after falling from 1.2073 and could protect the pair from making a newer low again below 1.1875 which has become the pair main support right now before 1.16 whereas the pair has started its rally to 1.604 before falling to 1.233 and rising back forming a lower high at 1.515 in the beginning of last December.

Best wishes

FX Consultant Walid Salah El Din E-Mail: