EUR / USD – Euro Continues to Test 1.30 Level

EUR/USD has leveled off from the highs and lows we saw late last week. However, the pair remains under pressure as it tries to stay above the 1.30 level in Tuesday’s European session. It is another quiet day as far as fundamental releases. In the Eurozone, Germany released inflation numbers. Final CPI matched the forecast, but WPI (Wholesale Price Index) fell below the estimate. In the US, today’s highlight is the Federal Budget Balance, which is expected to post a large deficit.

 The euro was in full swing last week, as it posted some sharp highs and lows. The continental currency shot up after the ECB maintained interest rates at 0.75%, and gained over one cent against the US dollar. On Friday, the euro gave up almost all of those gains, closing the week just under the 1.30 level. Why the tumble? The answer is outstanding US employment numbers, which gave a boost to the dollar. As well, the euro was hurt by German Industrial Production, which came in at a flat 0.0%, well below the market estimate. The euro has leveled off early in the week, as it trades very close to the 1.30 level.

ECB head Mario Draghi has tried to put a positive spin on the Eurozone economy, but the Fitch ratings agency wasn’t buying. On Friday, Fitch downgraded the debts of Italy and Spain, Belgium, Cyprus, and Slovenia. All are members of the Eurozone, and Fitch warned that urgent action was needed to deal with the debt crisis. These downgrades could result in higher borrowing costs for Italy and Spain. Fitch also placed a negative outlook on all five members, meaning that there is greater than 50 percent chance of another downgrade in the next two years. The downgrade is more bad news for Italy, which is struggling with a political crisis and economic malaise. The Eurozone’s third largest economy crisis is struggling with high unemployment, weak growth and a massive debt of EUR 1.9 trillion.

In the US, last week’s employment numbers were red-hot, and the Unemployment Rate dropped to 7.7%, its lowest level since 2008. The improving economy has led to speculation that the Fed might end the current round of QE, which involves the purchase of $85 billion in assets each month, earlier than expected. In one scenario, the Fed would let the trillions of dollars in securities they have purchased to mature, rather than dump a huge amount of securities on the market. The US economy has been bumpy, and has not responded all that well to the Fed’s massive purchase of assets. This “new exit” strategy could take place later in year, and would be a dramatic shift in the Federal Reserve’s current monetary policy.

EUR/USD for Tuesday, March 12, 2013

1.3021 H: 1.3038 L: 1..2992

EUR/USD Technical

EUR/USD continues to trade close to the 1.30 level in Tuesday trading, as the proximate resistance and support lines (R1 and S1 above) remain intact. The round number of 1.30, a psychologically significant level, is providing weak support and could continue to face activity. This is followed by a support level at 1.2950. On the upside, 1.3080 is providing strong resistance.

Current range: 1.3000 to 1.3080.

Further levels in both directions:

• Below: 1.3000, 1.2950, 1.2882 and 1.2802
• Above: 1.3080, 1.3130, 1.3170, 1.3280, 1.3350 and 1.34

OANDA’s Open Position Ratios

The EUR/USD ratio has reversed directions, and is pointing to short positions in Tuesday trading. Currently, the pair is hugging the 1.30 line, unable to sustain any momentum in either direction. Traders should note that the ratio is evenly split between long and short open positions, as trader sentiment is evenly split as to which direction EUR/USD will take.

The euro continues to stick close to the 1.30 line, and has moved slightly above and below this level in Tuesday’s European session. Will the pair break out of the narrow range? We won’t see any key fundamental releases until Wednesday, so EUR/USD could well continue to stick close to 1.30.

EUR/USD Fundamentals

• 7:00 German Final CPI. Estimate 0.6%. Actual 0.6%
• 7:00 German WPI. Estimate 0.4%. Actual 0.1%
• 11:30 US NFIB Small Business Index. Estimate 91.3 points
• 18:00 US Federal Budget Balance. Estimate -200.0B

*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.