EUR/USD – Edges Higher As Markets Eye German Business Confidence

EUR/USD is not making much noise on Friday, as the pair trades in the high-1.34 range in the European session. Thursday was another busy day for US releases, highlighted by a solid Unemployment Claims release. On the downside, PPI posted another decline and the Philly Fed Manufacturing Index plummeted to a six-month low. Taking a look at Friday’s events, German Ifo Business Climate, a key indicator, will be released later on Friday. As well, ECB head Mario Draghi will deliver remarks at a banking conference in Frankfurt. In the US, there’s a pause in the action after two busy days. Today’s highlight is JOLTS Job Openings.

There was positive news on the US employment front, as Unemployment Claims dropped to 323 thousand, a seven-week low. This was well below the estimate of 333 thousand. The strong figure will likely increase speculation as to when the Fed will step in and taper QE, although such a dramatic move is not considered likely before early 2014. The markets will be keeping a close eye on JOLTS Job Openings, which will be released later on Friday.

Low inflation indicators have been a major concern in Japan and the Eurozone, and the US economy is not immune from this problem. The Producer Price Index continues to look weak, posting a decline of 0.2% in October. This was the index’s second straight decline. Earlier this week, Core CPI showed a weak gain of 0.1%, and CPI dipped to -0.1%. These weak inflation numbers point to slow economic activity and remain a major concern.

The dollar got a strong shot in the arm following Wednesday’s release of the Fed policy meeting minutes. Policymakers said the current QE level of $85 billion monthly purchases of bonds could taper “in coming months” if the economy continued to improve. A scaling down of QE is dollar-positive, so we could see the greenback continue to make gains against the major currencies. Earlier in the week, Fed chair Bernard Bernanke said that the employment market improvement was “meaningful” and that interest rates would likely remain low even after QE ends.

The Eurozone continues to struggle, as Manufacturing and Services PMIs pointed to a mixed picture. In France, both PMIs came in below 50, reflecting contraction in the manufacturing and services sectors. Eurozone Manufacturing PMI was within expectations, while Services PMI stayed above 50 but fell short of the estimate. German data was sharper, as both PMIs beat the estimates and remained comfortably above the 50-point level. If we don’t see stronger numbers out of the Eurozone, the euro could find itself caught in some strong southerly winds.

With inflation stuck at low levels despite recent rate cuts, the ECB is considering cutting the deposit rate, which currently stands at 0.0%. However, a move into negative territory would represent unchartered territory and could have negative consequences for the economy. So if the ECB does go ahead and reduce the deposit rate, we could see a “mini cut” of less than 0.25%. The OECD has also expressed concern about the dangers of deflation in the Eurozone and is urging the ECB to consider implementing quantitative easing. QE represents an important tool in the arsenals of central banks such as the Federal Reserve and the Bank of England.

EUR/USD for Friday, November 22, 2013

EUR/USD November 22 at 9:05 GMT

EUR/USD 1.3514 H: 1.3522 L: 1.3463

EUR/USD Technical

• EUR/USD has edged higher in Friday’s European session. The pair pushed above the 1.35 line early in the European session and continues to put pressure on the dollar.
• On the downside, the round number of 1.3500 continues to provide support. This is a weak line which saw action earlier in the day. This is followed by a support line at 1.3410.
• The pair is facing resistance at 1.3585. Next, there is resistance at 1.3649, which has been remained intact since late October.
• Current range: 1.3500 to 1.3585

Further levels in both directions:

• Below: 1.3500, 1.3410, 1.3325, 1.3265 and 1.3149
• Above: 1.3585, 1.3649, 1.3786 and 1.3893

OANDA’s Open Positions Ratio

EUR/USD ratio is pointing to gains in short positions in Friday trading. This is not reflected in the pair’s movement, as the euro has posted slight gains against the dollar. A large majority of the open positions remain short, indicative of a trader bias towards the dollar reversing directions and posting gains against the euro.

The pair is trading quietly in the low-1.34 range on Friday. With no major US releases on Friday, we could see the pair continue to trade fairly close to the 1.34 line.

EUR/USD Fundamentals

• 7:00 German Final GDP. Estimate 0.3%. Actual 0.3%.
• 9:00 German Ifo Business Climate. Estimate 107.9 points.
• 9:00 Italian Retail Sales. Estimate 0.4%.
• 9:30 ECB President Mario Draghi Speaks.
• All Day – Eurogroup Meetings.
• 13:40 US FOMC Member Esther George Speaks.
• 14:00 Belgian NBB Business Climate. Estimate -6.9 points.
• 15:00 US JOLTS Job Openings. Estimate 3.89M.
• 17:15 US FOMC Member Daniel Tarullo Speaks.

*Key releases are highlighted in bold

*All release times are GMT

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