EUR/USD – Euro Weakens As German Economic Sentiment Slips

EUR/USD has softened on Tuesday, as the pair has finally broken out from its rangebound trading. In the European session, the pair has dipped close to the 1.37 line. The euro has reacted negatively to a dismal German ZEW Economic Sentiment, as the key indicator dropped to a 16-month low. Eurozone Economic Sentiment followed suit with a soft reading in April. In the US, today’s highlights are Core Retail Sales and Retail Sales. Strong numbers would point to increased consumer spending and could lift the dollar further against the euro.

The first Eurozone releases of the week were anything but impressive. German ZEW Economic Sentiment, a key indicator, weakened badly in April, dropping to 33.1 points. This was well off the estimate of 41.3 and its worst showing since December 2012. The Eurozone release followed suit, dropping to 55.2 points, compared to an estimate of 63.5 points. These indicators are based on a survey of institutional investors and analysts, and the weak numbers point to increasing concern about the Eurozone and German economies.

The ECB held its policy meeting last Thursday, and the euro took traders and investors on a wild ride in both directions. Mario Draghi took note of worrying inflation indicators, saying that food and energy prices, the strong euro and weak domestic demand were all factors in weak inflation which has engulfed the Eurozone. He then surprised the markets by adding that the Bank would be comfortable taking action in June, after re-examining inflation and growth forecasts in June. This is the clearest sign in months that the ECB is prepared to take action, and a reaction from the market was quick to follow, with the euro suffering sharp losses after coming within a few pips of the key 1.40 line. Draghi added that the ECB would continue to monitor exchange rates. Many analysts are of the view that the “line in the sand” for the ECB is the 1.40 level, and if the euro rebounds and moves above this line, it’s more than likely that the ECB will take action to reign in the high-flying currency.

There were no surprises from Federal Reserve Chair Janet Yellen last week, who gave a cautious thumbs-up to the economic recovery in testimony before Congress. Yellen said that the US economy has improved, but noted two sore spots – the employment market and inflation which remains below the Fed’s target of 2%. Yellen stated that she therefore expects that low interest rate levels will continue to stay low for a “considerable time”. Yellen has stated previously that slack remains in the economy, and the Fed is expected to proceed carefully with future tapers to its QE scheme. Since December, the Fed has trimmed the asset-purchase program by almost half, cutting it to $45 billion each month.

EUR/USD for Tuesday, May 13, 2014

EUR/USD May 13 at 10:45 GMT

EUR/USD 1.3712 H: 1.3771 L: 1.3710

EUR/USD Technical

• EUR/USD has lost ground in Tuesday trade.
• 1.3649 is providing support to the pair. 1.3585 is stronger.
• On the upside, 1.3786 has some breathing room as the euro has given up some ground. This is followed by 1.3893.
• Current range: 1.3649 to 1.3786

Further levels in both directions:

• Below: 1.3649, 1.3585, 1.3487 and 1.3346
• Above: 1.3786, 1.3893, 1.4000, 1.4149

OANDA’s Open Positions Ratio

EUR/USD ratio is pointing to gains in short positions on Tuesday. This is consistent with the pair’s current movement, as the euro has posted losses. The ratio currently has a slight majority of short positions, indicative of a slight trader bias towards the dollar continuing to move upwards.

EUR/USD has posted losses in the European session. We could see the pair dip into 1.36 territory if the pair’s downward trend continues.

EUR/USD Fundamentals

• 6:00 German WPI. Estimate 0.1%. Actual 0.2%.
• 9:00 German ZEW Economic Sentiment. Estimate 41.3 points. Actual 33.1 points.
• 9:00 Eurozone Economic Sentiment. Estimate 63.5 points. Actual 55.2 points.
• 11:30 US NFIB Small Business Index. Estimate 94.6 points.
• 12:30 US Core Retail Sales. Estimate 0.6%.
• 12:30 US Retail Sales. Estimate 0.5%.
• 12:30 US Import Prices. Estimate 0.4%.
• 14:00 US Business Inventories. Estimate 0.4%.

*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.