EUR/USD – Euro Almost Unchanged as Syrian Fears Ease

EUR/USD is steady in Friday, as markets jitters over a US strike against Syria have eased. The pair sustained sharp losses on Thursday, but is trading quietly in the mid-1.32 range in Friday’s European session. On Thursday, US releases were solid, as GDP posted a strong gain and Unemployment Claims was very close to the forecast. Friday is busy, but there are no major releases out of the Eurozone or the US. In the Eurozone, German Retail Sales declined sharply while Italian Unemployment data showed some improvement. Over in the US, we’ll get a look at inflation, PMI and consumer confidence data later in the day.

The markets reacted nervously this week as a US military strike against Syria appeared imminent. The US had declared that it would respond to a chemical attack, apparently by the Syrian government, which killed hundreds of civilians. The euro dropped sharply, losing about 150 points over the past two days. However, there is now a strong possibility that a strike by the US could be postponed until mid-September. On Thursday, the British parliament voted by a narrow margin not to join any US attack on Syria, and other US allies do not want to take any action before the UN has a chance to review data collected by UN inspectors in Syria. This complicates President Obama’s attempts to solidify a coalition before taking military action. On Friday, the markets have steadied and the euro has halted its recent slide against the dollar.

US releases have been pointing in all directions this week. On Wednesday, US Pending Home Sales was a disappointment, but Thursday’s key releases looked solid. Preliminary GDP posted another strong gain of 2.5% in Q1, after a 2.4% rise in Q1. Unemployment Claims dropped slightly to 331 thousand, just shy of the estimate of 330 thousand. These strong numbers, especially the positive Unemployment Claims release, will likely fuel speculation in the markets that the Federal Reserve could taper QE in September rather than later in the year, so we could see the dollar post gains against the euro.

Back in the Eurozone, German numbers are again causing concern as Germany continues to post weak releases. On Thursday, Unemployment Change jumped from -7 thousand in July to 7 thousand in August. The markets had expected another decline of -5K. Friday brought no relief as Retail Sales declined 1.4%, well off the estimate of a 0.5% gain. National elections are just a few weeks away, and economic problems could hurt Chancellor Angela Merkel, who is seeking a third straight term in office. No less significant is the fact that as the Eurozone’s number one economy, Germany will have to show stronger numbers if the Eurozone is to emerge from the long recession which has engulfed the continent.

The Federal Reserve has kept mum as to when it plans to taper QE, but recent statement from Fed policymakers underscore the divisions regarding the timing of such a dramatic move. Dennis Lockhart, head of the Atlanta Fed, said that tapering could start in September, but only if US data 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. Meanwhile, the uncertainty over QE tapering has boosted the US dollar, raised the yields on US treasury bonds and led nervous investors to pull billions of dollars out of emerging markets. With September just around the corner, we could see strong volatility in the markets as speculation over QE heats up.

EUR/USD for Friday, August 30, 2013

EUR/USD 1.3237 H: 1.3255 L: 1.3222

EUR/USD Technical

• EUR/USD has halted Thursday’s sharp decline in Friday trading. In the Asian session, the pair crashed touched a high of 1.3255 but has edged lower in European trading.
• The pair continues to face resistance at the round number of 1.33. The next line of resistance is at 1.3410.
• On the downside, EUR/USD is receiving strong support at 1.3162. This line has remained firm since mid-July. This is followed by a support level at 1.3100.
• Current range: 1.3162 to 1.3300

Further levels in both directions:

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

OANDA’s Open Positions Ratio

EUR/USD ratio continues to point towards long positions on Friday. This is not currently reflected in the pair, which is showing very little movement. The ratio continues to have a solid majority of short positions, indicative of a strong trader bias towards the US dollar posting gains at the expense of the euro.

EUR/USD has posted sharp loses this week, but has steadied on Friday. We could see the pair trade quietly in the low-1.32 range as we wrap up the trading week.

EUR/USD Fundamentals

• 6:00 German Retail Sales. Estimate 0.5%. Actual -1.4%.
• 8:00 Italian Quarterly Unemployment Rate. Estimate 12.1%. Actual 12.1%.
• 8:00 Italian Monthly Unemployment Rate. Estimate 12.2%. Actual 12.0%.
• 9:00 Eurozone CPI Flash Estimate. Exp. 1.4%.
• 9:00 Eurozone Unemployment Rate. Exp. 12.1%.
• 9:00 Italian Preliminary CPI. Exp. 0.2%.
• 12:30 US Core PCE Price Index. Exp. 0.2%.
• 12:30 US Personal Spending. Exp. 0.3%.
• 12:30 US Personal Income. Exp. 0.3%.
• 13:00 US FOMC Member James Bullard Speaks.
• 13:45 US Chicago PMI. Exp. 53.2 points.
• 13:55 US Revised UoM Consumer Sentiment. Exp. 81.2 points.
• 13:55 US Revised UoM Inflation Expectations.

*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.