EUR/USD – Euro Steady as Markets Wait for ECB Rate Announcement

In Thursday’s European session, the euro has pushed higher against the dollar, moving into the mid-1.35 range. The markets are keeping a close eye on today’s ECB interest rate announcement and follow-up comments from ECB head Mario Draghi. The ECB is widely expected to maintain its benchmark interest rate at 0.75%. The day started off on a disappointing note, as French Trade Balance dipped to a four-month low. The markets will be hoping for better news from German Industrial Production. Today’s highlight is US Unemployment Claims.

The euro has moved higher in Thursday’s European session, as the market keeps a close eye on today’s ECB policy meeting. Most analysts expect the key interest rate to be maintained at 0.75%, so no surprises are likely. However, the markets will be closely attuned to follow-up remarks by ECB head Mario Draghi. At the previous policy meeting, Draghi’s optimism about the Eurozone helped fuel the euro’s sharp rise. Will he continue to sound bullish about the economy? If so, we may be in for another rally by the euro. Meanwhile the strength of the euro has become a contentious issue. In a speech earlier this week 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-flying 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, such as a weaker euro. The question of currency intervention will not disappear anytime soon, with heavyweights Germany and France at loggerheads over the issue.

Although Eurozone economic data is far from sparkling, there is growing confidence in the markets that the Eurozone economy may have turned the corner and the worst is now behind us. Recent employment and manufacturing data out of the Eurozone are showing improvement. The highlight was the Eurozone Unemployment Rate which dipped to 11.7%, beating the forecast of 11.9%. Spanish, Italian and Eurozone Manufacturing PMIs were all slightly above the estimate, although all three remain below the 50 point threshold, indicating contraction in the manufacturing sector. The euro continues to trade at high levels after pummelling the US dollar in January. However, many economic indicators point to ongoing weakness in the economy, and an unemployment rate close to 12% will not win any accolades. Still, there is a sense of optimism in the air, and positive sentiment can certainly be a market-mover. 

EUR/USD for Thursday, February 7, 2013

EUR/USD February 7 at 10:15 GMT

1.3560 H: 1.3573 L: 1.3547

EUR/USD Technical

EUR/USD is trading quietly in the mid-1.35 range. 1.3550 is providing weak support, and this line could ses further activity during the day. The is followed by 1.3480, which is a strong support level. On the upside, 1.3627 is firm. The next line of resistance is at 1.3690.

Current range: 1.3550 to 1.3627.

Further levels in both directions:

• Below: 1.3550, 1.3480, 1.34, 1.3350, 1.3280, 1.3240 and 1.3170.
• Above: 1.3627, 1.3690, 1.3745, 1.3796, 1.3858 and 1.3936 and 1.40.

OANDA’s Open Position Ratios

The EUR/USD ratio continues to switch directions. At present, there is a strong move towards long positions. Although the pair is not showing much movement, the ratio activity could signal that we will see the euro breakout and make further gains against the US dollar. Most open positions in the ratio continue to be short, but the long position component is increasing.

After a spectacular rise in January, the euro has leveled off. Is the euro’s rally over? Or will it continue after a short pause? With the ECB rate announcement and the release of key US employment data later today, EUR/USD could show some volatility.

EUR/USD Fundamentals

• 7:45 French Trade Balance. Estimate -4.2B. Actual -5.3B.
• All Day: EU Economic Summit (Day 1).
• Tentative: French 10-year Bond Auction.
• 11:00 German Industrial Production. Estimate 0.2%.
• 12:45 Eurozone Minimum Rate. Estimate 0.75%.
• 13:30 ECB Press Conference.
• 13:30 US Unemployment Claims. Estimate 361K.
• 13:30 US Preliminary Non-Farm Productivity. Estimate -1.3%.
• 14:30 US FOMC Member Jeremy Stein Speaks.
• 15:30 US Natural Gas Storage. Estimate -135B.
• 20:00 US Consumer Credit. Estimate 141.1B.

*Key releases are highlighted in bold

*All release times are GMT

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