EUR/USD – Steady as Markets Await Key US Releases

The euro is steady as we begin the new trading week, as EUR/USD is trading in the mid-1.34 range. The euro has looked very sharp, gaining about 150 points since Thursday. Eurozone M3 Money Supply was a disappointment, dropping to a three-month low.  In the US, there are two major releases on Monday  – Core Durable Goods Orders and Pending Home Sales.

EUR/USD continues to trade at high levels following positive data out of Germany and the US on late last week. German PMIs were excellent, as both Services and Manufacturing PMIs easily beat the market forecast. Manufacturing PMI climbed to 48.8 points, beating the estimate of 47.7 points. This was the key manufacturing index’s best showing since February. Services PMI looked even better, climbing to 55.3 points. This easily exceeded the forecast of 52.0 points, and was the highest level seen since May 2011. Over in the US, employment numbers were red hot. Unemployment Claims fell to 330 thousand, crushing the estimate of 359 thousand. Almost lost in the crowd was an outstanding release from Eurozone Current Account, which posted a surplus of EUR 14.8 billion, well above the estimate. The euro made the most of the excellent numbers, as it trades in the mid-1.34 range.  The euro jumped after Eurozone PMIs were released, but a careful reading of the data shows that the news wasn’t all positive. German Manufacturing PMI did beat the market estimate, but remains below the 50 level, pointing to further contracting in the German Manufacturing Sector. French numbers were weak, with both Services and Manufacturing PMIs posting readings in the low-40 range. Both PMIs were well below market expectations. Eurozone PMIs were somewhere in the middle, beating the estimates. However, both indexes fell below the 50 line, pointing to continuing contraction in the Eurozone services and manufacturing sectors.

The debt crisis continues to hobble the Eurozone, affecting both large and small members of the bloc. Cyprus saw its credit rating drop late last week, as Fitch Ratings cut the island country’s credit rating by two levels to B. Fitch noted that that recapitalization costs for the Cypriot banking sector could be as high as EUR 10 billion, higher than previously estimated. Cyprus officially requested a bailout last June, and is negotiating the terms with the ECB and the IMF. Fitch’s move follows a reduction by Moody’s, which downgraded the country’s forecast by three levels to Caa3. The downgrades underscore the weakness and vulnerability of the Cypriot economy, and will increase pressure on all sides to reach an agreement on the terms of a rescue package.

In the US, uncertainty about the extent of the recovery lingers, as economic data continues to point in all directions. The employment situation appears to be improving, as the Unemployment Claims indicator has looked outstanding for the past two weeks. Retail Sales also has looked sharp. On the other hand, we continue to see sluggish manufacturing and consumer sentiment data. As well, the most recent housing numbers fell below the estimate. With the US economic indicators sending mixed signals about the extent of the recovery, the uncertainty is likely to be reflected in the currency markets. The US Federal Reserve has not been in the headlines lately, but is busy at work, as it increased its purchases of securities in January from $40 billion to $85 billion. This has pushed  the Fed’s balance sheet to a record $3 trillion. Despite these measures, the US recovery remains slow, and unemployment is still high at 7.8%. The markets will be paying close attention to the Fed’s take on the economy, when it meets for a key policy meeting this week.

EUR/USD for Monday, January 28, 2013

EUR/USD January 28 at 10:05 GMT

1.3456 H: 1.3470 L: 1.3425

EUR/USD Technical

EUR/USD is steady, as the pair trades in the mid-1.34 range. The pair is receiving support at the 1.34 line. 1.3350 is the next line of support. On the upside, 1.3480 is providing resistance. This line could be tested if the euro continues to push higher. 1.3568 is a strong resistance line.

Current range: 1.34 to 1.480.

Further levels in both directions:

• Below: 1.34, 1.3350, 1.3280, 1.3240, 1.3170, 1.3130, 1.3080, 1.3030, 1.30 and 1.2960.
• Above: 1.3480, 1.3536, 1.3627, 1.3745 and 1.3858.

OANDA’s Open Position Ratios

The EUR/USD ratio is quiet as we begin the trading week, with the pair trading comforatably in the mid-13.4 range. Trader sentiment continues to be strongly biased in favor of short positions.This could indicate that we will see a correction, with the pair giving up some of its recent gains. If EUR/USD resumes last week’s volatility, we can expect to see more activity in the ratio.

The euro has made impressive gains over the past few days against the US dollar. Will the upward trend continue? Recent US data continues to be mixed, and the markets will try to get a feel of where the pair may be headed after the US releases key data later on Monday. We can expect some movement if the US numbers do not fall in line with the market esimates.

EUR/USD Fundamentals

• 9:00 Eurozone M3 Money Supply. Estimate 3.9%. Actual 3.3%
• 9:00 Eurozone Private Loans. Estimate -0.7%. Actual -0.7%%
• 13:30 US Core Durable Goods Orders. Estimate 0.8%
• 13:30 US Durable Goods Orders. Estimate 1.8%
• 15:00 US Pending Home Sales. Estimate 0.5%

*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.