EUR/USD – Euro Reverses Direction on Ukraine Fears, Draghi Comments

The euro made a sharp U-turn on Thursday as it was closing in on the key level of 1.40. EUR/USD is back below the 1.39 line in Friday’s European session. There is growing tension in the markets over the crisis in the Ukraine, with a referendum over Crimea scheduled for Sunday. As well, ECB Mario Draghi commented on the high value of the euro. On the release front, US Unemployment Claims looked sharp, while Retail Sales met expectations. On Friday, German CPI rebounded in February and the Eurozone Employment Change met expectations. In the US, today’s key events are PPI and Preliminary UoM Consumer Sentiment.

All eyes are pointed east of the Eurozone, as the crisis in the Ukraine quickly heads to a boiling point. Russia has effectively taken over Crimea and a referendum over whether the region’s residents wants to join Russia will be held Sunday. Europe and the US have already slapped some sanctions on Russia, and have vowed to take stronger steps if the referendum goes ahead. There are also fears that Russia could invade eastern Ukraine, which has a pro-Russian population. Secretary of State John Kerry is meeting on Friday with his Russian counterpart to try and de-escalate the crisis, which some European leaders have described as the worst since the end of the Cold War in the 1990s.

The euro looked like it might break above the key 1.40 line on Thursday, but the markets paid attention when ECB head Mario Draghi took note of the soaring continental currency. Draghi said that the “exchange rate is increasingly relevant in assessment of price stability”. Although Draghi also stated that the exchange rate isn’t a policy target for the ECB, the hint from the ECB chief was enough to chill the markets and weigh on the euro.

In the US, concerns about the job market eased after a solid Unemployment Claims release on Thursday. The key indicator dropped to 315 thousand, down from 323 thousand the previous week. This beat the estimate of 334 thousand and marked a three-month low. Core Retail Sales and Retail Sales both posted gains of 0.3%, which were within market expectations. These indicators are the primary gauges of consumer spending, and although the gains were modest, they mark an improvement over the January readings.

With Nonfarm Payrolls improving and Unemployment Claims dropping, the markets can breathe more comfortably as the Fed is likely to take its scissors and trim QE next week for a third time. New York Fed President William Dudley stated last week that the threshold to alter the Fed’s program to wind up QE was “pretty high”. In other words, short of a serious economic downturn in the US economy, we can expect the QE tapers to continue, with the Fed aiming to wind up the program before the end of 2014.

EUR/USD for Friday, March 14, 2014

EUR/USD March 14 at 10:20 GMT

EUR/USD 1.3894 : 1.3896 L: 1.3847

EUR/USD Technical

• EUR/USD has edged higher on Friday. The pair posted gains late in the Asian session and continues to move higher in the European trading. We could see the euro move back above 1.39 later in the day.
• The round number of 1.40, a key level, is providing resistance. It has some breathing room after the euro lost ground on Thursday. The next line of resistance is at 1.4149.
• On the downside, the pair is testing support at 1.3893. The next support level is 1.3786.
• Current range: 1.3893 to 1.4000

Further levels in both directions:

• Below: 1.3893, 1.3786, 1.3649, 1.3585 and 1.3410
• Above: 1.4000, 1.4149, 1.4307 and 1.4397

OANDA’s Open Positions Ratio

EUR/USD ratio is pointing to gains in long positions in Friday trading. This is consistent with the pair’s current movement, as the euro has posted gains against the dollar. Short positions retain a strong majority, indicative of trader bias towards the dollar moving higher.

The euro has recovered much of Thursday’s losses as it trades slightly below the 1.39 line. EUR/USD has posted gains in the European session as the dollar remains under pressure.

EUR/USD Fundamentals

• 7:00 German Final CPI. Estimate 0.5%. Actual 0.5%.
• 10:00 Eurozone Employment Change. Estimate 0.0%. Actual 0.1%.
• 12:30 US Producer Price Index. Estimate 0.2%.
• 12:30 US Core PPI. Estimate 0.1%.
• 13:55 US Preliminary UoM Consumer Sentiment. Estimate 81.9 points.
• 13:55 US Preliminary UoM Inflation Expectations.

*Key releases are highlighted in bold

*All release times are GMT

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