EUR/USD – Euro Stems Sharp Losses

After last week’s sharp losses, EUR/USD has leveled off as we begin a new trading week. On Thursday, the markets reacted negatively to comments by ECB head Mario Draghi, who warned that the high value of the euro was a risk to growth in the Eurozone. US Trade Balance numbers looked good, as the deficit narrowed significantly. On Monday, French Industrial Production declined, but managed to beat the estimate. Today’s highlight is the Eurogroup meeting in Brussels. The euro is currently testing the 1.34 line.

In January, the euro rallied following positive remarks by ECB head Mario Draghi about the Eurozone economy. Speaking at the ECB’s press conference last week, Draghi once again lit a fire under the currency, only this time in the opposite direction. Draghi warned that the high-flying euro was affecting prices and economic growth in the Eurozone. He stated that the exchange rate was not a policy target, but the ECB would “closely monitor money market developments”. The markets wasted little time in reacting to these comments, and the euro plunged, losing over a cent. Almost lost in the excitement was the fact that the ECB’s key interest rate remained unchanged at 0.75%.

Meanwhile, in a recent speech before the European Parliament, French President Hollande called on the Eurozone to set a “medium term” target for the exchange rate of the euro. Hollande’s remarks were a response to the high value of the currency, which is hurting French exports and the manufacturing industry. However, German officials were quick to state their opposition to such a move. German Economy Minister Phillipp Roesler summed up the view in Berlin, declaring that “the objective must be to improve competitiveness and not to weaken the currency”. While the German economy is showing recovery signs, the French economy continues to stumble, and Hollande is grabbing for any crutches he can lay his hands on, including a more competitive euro. The question of currency intervention will not disappear anytime soon, with heavyweights France and Germany at loggerheads over the issue.

At a meeting of EU leaders last week, EU leaders hammered out a deal to cut the EU budget. This marks the first time that the bloc’s seven-year budget is being reduced, from the current 994 billion euros to 960 billion. The cuts are modest in scale, but nonetheless an important step in reigning in spending. The deal is a hard-fought compromise, as it reduces the budget while providing more funds for agricultural aid. Although all EU leaders have signed off on the agreement, it must be approved by the European parliament, which is by no means certain. European Parliament head Martin Schulz has already stated that the budget will not pass in its current format.

 EUR/USD for Monday, February 11, 2013

EUR/USD February 11 at 10:35 GMT

1.3388 H: 1.3404 L: 1.3358

EUR/USD Technical

EUR/USD has leveled off after Thursday’s sharp losses. On the resistance side, the pair is putting pressure on 1.34, and this major line could face more activity during the day. There is followed by strong resistance at 1.3480. On the downside, there is support at 1.3350. This is followed by stronger support at 1.3280.

Current range: 1.34 to 1.3480.

Further levels in both directions:

• Below: 1.3350, 1.3280, 1.3240 and 1.3170
• Above: 1.34, 1.3480, 1.3627, 1.3690, 1.3745, 1.3796 and 1.3858

OANDA’s Open Position Ratios

The EUR/USD ratio has picked up where it left things last week, as we continue to see movement towards long positions. This component has substantially increased recently, and is not far from a “50/50” split. The current movement in the ratio could signal that the euro will rebound, after sustaining sharp losses late last week. 

The euro has managed to level off following last week’s tumble, thanks to negative remarks by ECB had Mario Draghi. Will the euro bounce back? EUR/USD is testing the important 1.34 line, and we could see the pair continue to trade near this level.

EUR/USD Fundamentals

• 7:45 French Industrial Production. Estimate -0.3%. Actual -0.1%.
• All Day: Eurozone Eurogroup Meetings.
• All Day: Eurozone ECOFIN Meetings.
• 18:00 US FOMC Member Janet Yellen Speaks.

*Key releases are highlighted in bold

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.