EUR/USD – Dollar Remains Firm Despite Strong German Business Data

After a very quiet start to the trading week, the euro has posted modest losses against the US dollar on Tuesday. EUR/USD was trading in the low-1.33 range in Tuesday’s European session. German Business Climate hit a sixteen-month high, but the euro has failed to take advantage and slipped against the dollar. US releases continued to look weak as manufacturing numbers looked awful on Monday. It’s another light schedule today, with just three events out of the US, highlighted by CB Consumer Confidence.

There was good news out of the Eurozone on Tuesday, as German Ifo Business Climate posted its fourth straight gain. The key index climbed from 106.2 points in July to 107.5 in August, beating the estimate of 107.1 points. This is its highest since April 2012. Eurozone releases have been pointing upwards, but if Europe is to put the recession behind it, it will need a strong and robust German economy to lead the way. We’ll get another look at German data on Wednesday, with the release of GfK German Consumer Climate.

US key releases continue to disappoint, as Core Durable Goods Orders and Durable Goods Orders looked awful. Durable Goods Orders plunged 7.3% in August, much worse than the estimate of a 3.0% decline. Core Durable Goods Orders, a key release, dropped 0.6%, its first decline since April. The markets had anticipated a gain of 0.6%. These poor manufacturing figures come after the release of New Home Sales on Friday, which also were well off market expectations. However, the US dollar has managed to shrug off these weak figures, as the market focus appears to be on QE tapering rather than US economic releases.

The annual Jackson Hole Summit concluded on the weekend, but anyone expecting some clarity on QE tapering was in for a disappointment. Federal Reserve head Bernard Bernanke was a no-show, but other Fed policymakers in attendance didn’t hesitate to express their views. Dennis Lockhart, head of the Atlanta Fed, said that tapering could start in September, but only if US economic numbers justified such a move. There was a more hawkish statement from James Bullard, head of the St. Louis Fed. Bullard said that there was no need for the Fed to rush into QE tapering. The uncertainty over QE tapering has boosted the US dollar, raised the yields on US treasury bonds and had worldwide repercussions, such as causing jittery investors to pull billions of dollars out of emerging markets.

Back in the Eurozone, Greece has already received two bailouts from the troika, amounting to some 240 billion euros. Despite this massive infusion of funds, the country’s economy is still in difficult straits, and there is now talk of a third bailout. On Sunday, Greek finance minister Yannis Stournaras said that Greece was looking for another 10 billion euros in aid, but would not adopt any austerity measures in return. Germany is unlikely to be in a giving mood, with just weeks to go before national elections in Germany. Additional aid for Greece could damage Chancellor Angela Merkel’s credibility, as she recently stated that she didn’t see a need for more aid to Greece.

EUR/USD for Tuesday, August 27, 2013

EUR/USD 1.3346 H: 1.3391 L: 1.3325

EUR/USD Technical

• EUR/USD has posted modest losses in Tuesday trading. The pair traded quietly in the Asian session and consolidated at 1.3360. In European trading, the pair has edged lower.
• EUR/USD continues to face resistance at 1.3410. The next line of resistance is at 1.3476.
• On the downside, the pair continues to receive support at the round number of 1.3300. This is a weak line and could be tested if the euro loses ground. There is stronger support at 1.3162. This line has remained firm since mid-July.
• Current range: 1.3300 to 1.3410

Further levels in both directions:

• Below: 1.3300, 1.3162, 1.3100, 1.3050 and 1.3000
• Above: 1.3410, 1.3476, 1.3585 and 1.3649

OANDA’s Open Positions Ratio

EUR/USD ratio is almost unchanged in Tuesday trading, continuing the trend we saw on Monday. The pair has not shown much movement, although the euro has dropped slightly. The ratio continues to have a large majority of short positions, indicating strong trader bias towards the US dollar making inroads at the expense of the euro.

Recent key US releases have not been strong, but the euro has not been able to take advantage. We could see stronger movement from the pair later in the day, as the US releases key consumer confidence numbers later on.

EUR/USD Fundamentals

• 8:00 German Ifo Business Climate. Estimate 107.1 points. Actual 107.5 points.
• 13:00 US S&P/CS Composite-20 HPI. Estimate 11.9%.
• 14:00 US CB Consumer Confidence. Estimate 79.6 points.
• 14:00 US Richmond Manufacturing Index. Estimate -7 points.

*Key releases are highlighted in bold

*All release times are GMT

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