EUR/USD – Quiet as Markets Await US Key Releases

EUR/USD is trading in the mid-1.33 range, as the markets remain cautious ahead of key US releases on Thursday. The US will release Core Retail Sales, Retail Sales and Unemployment Claims, all of which are market-movers. So we could see some action from EUR/USD later today. In the Eurozone, German WPI disappointed, posting a decline of -0.4%. The estimate stood at -0.2%. As well, the ECB released its monthly bulletin.

Earlier this week, there was an interesting matchup, with the ECB versus the Bundesbank. The two powerful central banks faced off in court, as Germany’s Federal Constitutional Court concludes its review the constitutionality of the ECB’s OMT (Outright Monetary Transactions) program. Under OMT, the ECB can purchases bonds from members whose economies are in trouble. Last week, ECB head Mario Draghi stated that OMT had helped bring stability to the European and global markets and was a key monetary policy measure. Draghi’s optimistic view lies in sharp contrast to that of Bundesbank President Jens Weidmann, who voted against OMT and is asking the court to reject the scheme. In previous cases involving the legality of ECB rescue mechanisms, the German court has given its approval, but has sometimes added provisos. So we can expect the court to rule that OMT is legal, although the approval could come with strings attached. It should be noted that the ECB is yet to make use of the OMT program, and has not bought a single bond from distressed Eurozone members. A ruling from the court is not expected until September, after German elections.

Remember the Greek debt crisis, which shook up world markets? In an interesting twist, the IMF admitted making mistakes in the Greek bailout program, in which Greece received EUR 240 billion. The IMF said it failed to deal with private debt restructuring properly and had overestimated the ability of Greek governments to push through economic reforms. The IMF dished out some blame as well, pointing fingers at the EU for “notable mistakes”. For its part, Greece said that the IMF report would not affect the bailout agreement, as the country continues to work towards meeting its deficit reduction targets and getting back on its financial feet.

Taking a look at the US, there was some good news from the S&P ratings agency early in the week, as the well-respected firm revised the US sovereign credit rating from negative to stable. This is an important vote of confidence in the US economy, and means that there is less than a 1 in 3 chance of another downgrade in the next two years. S&P noted that a key factor in its revision was the agreement reached in the US Congress which averted the fiscal cliff crisis, which would have led to $600 billion in automatic tax increases and spending cuts and could have pushed the fragile US economy into recession. In 2011, S&P cut the US credit rating from AAA to AA, and the threat of another downgrade has been a concern of the markets. This news will likely improve market sentiment and could give a boost to the US dollar.

The S&P decision could also affect the US Federal Reserve’s QE program, which involves the purchase of $85 billion in assets each month. The Fed has said that it won’t scale back the program before it sees a stronger economy and an improving employment picture. Although US releases continue to be mixed, speculation is rising that the Fed could take action in the next few months. Since QE is US dollar-negative, any tapering of QE could give a boost to the greenback and jolt the currency markets.

EUR/USD for Thursday, June 13, 2013

EUR/USD 1.3331 H: 1.3391 L: 1.3322

EUR/USD Technical

EUR/USD is steady as the proximate support and resistance lines remain intact (S1 and R1 above). On the downside, 1.3271 continues to provide support. There is a stronger support level at 1.3162. On the upside, the pair faces resistance at 1.3353. This is a weak line which could be tested during the day. This is followed by a resistance line at 1.3477.

• Current range: 1.3271 to 1.3353

Further levels in both directions:

• Below: 1.3271, 1.3162, 1.3100, 1.3050 and 1.3000
• Above: 1.3353, 1.3477, 1.3586 and 1.3690

OANDA’s Open Positions Ratio

The EUR/USD ratio continues to show almost no change. This is consistent with the current lack of activity from the pair. Traders should continue to monitor the ratio, as renewed activity could be a sign that the pair will also exhibit more movement.

EUR/USD is trading quietly in the mid-1.33 range. With the US releasing retail sales and unemployment numbers later today, we can expect some volatility from the pair.

EUR/USD Fundamentals

• 6:00 German WPI. Estimate -0.2%. Actual -0.4%.
• 8:00 ECB Monthly Bulletin.
• 12:30 US Core Retail Sales. Estimate 0.3%.
• 12:30 US Retail Sales. Estimate 0.4%.
• 12:30 US Unemployment Claims. Estimate 354K.
• 12:30 US Import Prices. Estimate 0.0%.
• 14:00 US Business Inventories. Estimate 0.3%.
• 14:30 US Natural Gas Storage. Estimate 96B.
• 17:00 US 30-year Bond Auction.

*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.