EUR/USD – Steady After Eurozone and US Data Disappoints

EUR/USD is steady in Friday trading, as the pair has leveled off following sharp losses on Thursday. The euro lost close to a cent after a host of weak PMIs from the Eurozone, as well as the release of the minutes from the Federal Reserve’s most recent policy meeting. In the US, Unemployment Claims and the Philly Fed Manufacturing Index were well below the estimate. On a positive note, Core CPI and Existing Home Sales beat the forecast. In the Eurozone, the markets were treated to some good news after Thursday’s dismal PMI numbers. German Ifo Business Climate climbed to 107.4 points, easily exceeding the estimate of 104.2. This was the indicator’s strongest showing since April 2012. After a very busy Thursday, the only US releases today are speeches by two members of the Federal Reserve.

The euro suffered a rough day on Thursday, as the minutes of the most recent Federal Reserve revealed that members discussed winding down the current round of QE, due to concern that it could affect the financial markets. Previously, the Fed had stated that it expected to continue with QE until unemployment dropped to 6.5%. The Fed has been purchasing a record amount of assets since December, kept its key interest rate close to zero and expanded its balance sheet to over $3 trillion, but the US economy has not responded as quickly as hoped, and the unemployment rate remains close to 8.0%. The markets were surprised by the change in the Fed’s stance, and the euro dropped against the US dollar.

There was more bad news for the euro on Thursday, as PMI numbers from across Europe were weaker than anticipated. Services and Manufacturing PMIs released by France, Germany and the Eurozone were all below the forecast. Most of the indicators failed to break above the 50 point level. Any figure below 50 indicates contraction; thus, we are seeing continuing weakness in the services and manufacturing sectors. These figures come after weak GDP numbers out of the Eurozone, and underscore the persistent weakness in the economies of the major Eurozone members. ECB head Mario Draghi has confidently stated that the bloc will bounce back later in 2013, but the markets are likely to remain skeptical if economic indicators continue to be sluggish. After a stellar January, the euro has taken a beating in February, losing about 400 points against the US dollar. If Eurozone releases continue to disapppoint, we can expect the euro to continue to lose ground.

The markets are also keeping an eye on the Italian elections, which will take place on February 24-25. The euro could see gains if the center-left, under Pier Luigi Bersani manages to form a coalition with outgoing Prime Minister Monti. Monti won a lot of respect outside of Italy for his no-nonsense austerity measures, which are widely credited for saving the Italian economy. Not surprisingly, Italians were not as enthused about the cutbacks, and former Prime Minister Silvio Bersconi has been gaining in the polls. Analysts warn that that the worse scenario for the markets is an inconclusive result, so we could be in for some volatility from the euro come Monday, depending on what Italians have to say at the ballot box.  

EUR/USD for Friday, February 22, 2013

EUR/USD February 22 at 9:40 GMT

1.3219 H: 1.3245 L: 1.3183

EUR/USD Technical

EUR/USD is steady, and is trading in the low-1.32 range. The proximate support and resistance lines remain intact (S1 and R1 above). On the upside, 1.3240 is providing weak resistance. This line could be tested if the euro can muster some upward momentum. The next line of resistance is 1.3280. The pair is receiving support at 1.3170. This is followed by stronger support at 1.3130.

• Current range: 1.3170 to 1.3240.

Further levels in both directions:

• Below: 1.3170, 1.3130, 1.3080, 1.3030, and 1.30.
• Above: 1.3240, 1.3280, 1.3350, 1.34, 1.3480, 1.3568 and 1.3627.

OANDA’s Open Position Ratios

The EUR/USD ratio continues to show movement towards long positions. The pair is currently edging upward, after sustaining sharp losses over the past two days. The activity in the ratio reflects an expectation that the euro will continue to post gains against the dollar. Traders should also note that with the ongoing movement towards long positions, the ratio is close to an even split, with the short positions enjoying a slight advantage.

The euro has had a rough few days, and is struggling to remain above the 1.32 line. The markets reacted negatively to disappointing PMI numbers in the Eurozone. If the negative trend continues, look for the euro to suffer further losses. As well, we could see some volatility in EUR/USD, depending on the results of the upcoming election in Italy.

EUR/USD Fundamentals

• 7:00 German Final GDP. Estimate -0.6%. Actual -0.6%.
• 9:00 German Ifo Business Climate. Estimate 107.4 points. Actual 104.9 points.
• 11:00 Italian Retail Sales. Estimate 0.3%.
• 14:00 Belgium NBB Business Climate.
• 15:30 US FOMC Jerome Powell Speaks.
• 23:30 US FOMC Daneil Tarullo Speaks.

*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.