EUR/USD – Sharp Gains after Solid German Data

There have not been many releases this week out of the US or the Eurozone, and on Wednesday, the sole Eurozone release was German Industrial Production. The manufacturing indicator looked sharp, hitting a 10-month high. The euro responded by gaining close to a cent, and is trading in the mid-1.31 range in Thursday’s European session. In the US, today’s Unemployment Claims is the only key economic release of the week.

German manufacturing data has looked sharp this week. Earlier this week, Factory Orders climbed 2.2%, easily beating the estimate of -0.4%. On Thursday, Industrial Production followed suit, gaining 1.2%, its strongest showing since September. The markets were again caught off guard, as the estimate stood at -0.1%. EUR/USD responded by climbing close to one cent on Thursday. Germany long been the locomotive driving the Eurozone economy, and additional strong releases will renew confidence in Europe and help boost the euro.

ECB head Mario Draghi continues to be in the spotlight following the ECB’s dramatic rate cut. Earlier this week, Draghi said that last week’s cut was taken due to the continuing slowdown in the Eurozone, and urged Eurozone countries to take the necessary steps to get their fiscal houses in order. Draghi repeated that the ECB was open to further rate cuts, as well as lowering its deposit rates below zero. When he mentioned the latter point last week, the euro took a dive, but this time, the markets did not react. However, not all policymakers favor further rate reductions. Yves Mersch, an ECB board member, stated that interest rate cuts have limits to their effectiveness, and that the ECB had other tools to help revive the Eurozone.

New Italian Prime Minister Enrico Letta is on a European tour, and has called for an end to strict austerity. Letta wants to see the Eurozone leaders concentrate on renewing growth, rather than simply implementing more austerity measures. He received an enthusiastic welcome in Paris from French President Francois Hollande, whose popularity has plummeted due to his government’s austerity measures. Letta’s remarks were not received as warmly when he visited Berlin, as Germany is tired of bailing out other zone members and is a strong proponent of fiscal consolidation – namely, more austerity. We can expect some lively exchanges at future Eurozone summits regarding how to breathe life into the Eurozone’s ailing economy.

Remember all the talk about Greece being on the ropes and possibly leaving the Eurozone? Well, according to the IMF, things have improved. The organization released a report this week which praised Greece for its efforts to reduce crippling deficits, commending the country for “exceptional progress” in the past four years. The IMF also noted approvingly that Greece had increased competitiveness and kept the financial sector stable. At the same time, the report found that the country has failed to tackle tax evasion or cut the inefficient public sector, and these factors had contributed to a deep recession. With an economy that has shrunk by 20% and an unemployment rate at a staggering 27%, Greece is by no means out of the woods, and may still need a helping hand from the IMF or ECB in the near future.

EUR/USD for Thursday, May 9, 2013

EUR/USD 1.3140 H: 1.3177 L: 1.3136

EUR/USD Technical

EUR/USD is trading quietly in Thursday trading, as the proximate support and resistance levels remain in place (S1 and R1 above). On the downside, the round number of 1.31 is providing support. The next support level is at 1.3050. On the upside, 1.3170 is providing resistance. This is followed by a resistance line at 1.3240.

• Current range: 1.3100 to 1.3170

Further levels in both directions:

• Below: 1.31, 1.3050, 1.3000, 1.2960 and 1.2880
• Above: 1.3170, 1.3240, 1.3306, 1.3398 and 1.3479

OANDA’s Open Positions Ratio

After a lull on Wednesday, the EUR/USD ratio is showing movement in the direction of short positions. Currently, EUR/USD is moving lower, but the move has been very modest. Open short positions continue to have a dominant majority in the ratio, indicating that trader sentiment is strongly biased towards to US dollar pushing higher against the euro.

EUR/USD has settled down after some strong gains on Wednesday. Today’s highlight is US Unemployment Claims, and we could see some increased movement from the pair, as this release is a market-mover.

EUR/USD Fundamentals

• 8:00 ECB Monthly Bulletin.
• 12:30 US Unemployment Claims. Estimate 333K.
• 14:00 US Wholesale Inventories. Estimate 0.3%.
• 14:00 US Mortgage Delinquencies. Actual 7.25%.
• 14:30 US Natural Gas Storage. Estimate 80B.
• 17:00 US 30-year Bond Auction.

*Key releases are highlighted in bold

*All release times are GMT

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