EUR/USD – Euro Keeps Climbing, Breaks into 1.36 Territory

 The euro continues to pummel the US dollar, as the pair has climbed to the 1.3660 range in Friday trading. The pair is now at its highest level since November 2011. The euro received a boost from German Unemployment Claims, which posted their sharpest drop since last March. As well, the Eurozone and Italian Unemployment Rates showed  some improvement. In the US, this week’s GDP and employment numbers were weak, and the markets will be hoping for better news from Friday’s key employment releases – Non-Farm Employment Change and the Unemployment Rate, and the ISM Manufacturing PMI. Back in Europe, Friday’s PMIs were within markets expectations. The markets will be keeping a close eye on the Eurozone Unemployment Rate, which will be released later in the day.

The euro continues to climb to new levels, and is enjoying the view above the 1.36 horizon, its highest level since November 2011. The currency had a spectacular January, gaining about six cents against the US dollar. The continental currency has been bolstered by improving German data, as well as optimistic forecasts about the Eurozone economy from ECB President Mario Draghi and others. These officials acknowledge that the Eurozone is going through a tough time, but are confident that the economy will bounce back later in 2013. Although much of the zone is mired in a recession and the debt crisis continues to weigh on the economy, the euro is enjoying the ride, at least for now.

The German locomotive will have to shift into high gear if the Eurozone economy is to get back on its feet in 2013. Although German economic indicators have been mixed, market sentiment has risen after some outstanding data. Last week, German ZEW Consumer Sentiment shot up to its best level in almost three years, and this week’s Unemployment Claims dropped sharply. These positive releases have played a major role in the meteoric rise of the euro in the past few weeks. The markets are well aware that as goes Germany, so goes Europe, and will be hoping that the positive German data is reflected in the Eurozone indicators as well.

The Federal Reserve was in the spotlight for much of the week, as the markets were poised to react to any new developments. However, there was not much excitement after the two-day policy meeting wrapped up, as the Fed chose to stay the course. The Fed stated it would continue its open-ended QE3 program until the outlook for the labor market “improves substantially”. It noted that economic growth had stalled, but was confident that the pause was a temporary one. This laid to rest speculation that the current round of QE, under which the Fed is purchasing $85 billion a month in securities, might be terminated anytime soon. As expected, the Fed maintained its ultra-low benchmark interest rate, saying there would be no change until unemployment drops below 6.5%. With US unemployment close to 8%, we will likely be hearing this refrain for the foreseeable future.

EUR/USD for Friday, February 1, 2013

EUR/USD February 1 at 9:35 GMT

1.3664 H: 1.3670 L: 1.3600

EUR/USD Technical

EUR/USD continues to climb, and has moved into the mid-1.36 range. 1.3627 is providing weak support. The next line is 1.3550, which is a strong support level. On the upside, 1.3690 is the next line of resistance. Given the volatility we are seeing from the pair, this line could see activity before the week is over. This is followed by resistance at 1.3745.

Current range: 1.3627 to 1.3690.

Further levels in both directions:

• Below: 1.3627, 1.3550, 1.3480, 1.34, 1.3350, 1.3280 and 1.3240.
• Above: 1.3690, 1.3745, 1.3796, 1.3858 and 1.3910.

OANDA’s Open Position Ratios

The EUR/USD ratio continues to show very little movement. This lack of activity is not being reflected in the currency pair, as the euro continues to make strong gains against the US dollar. Trader sentiment remains strongly biased towards short postions, indicating a prevailing view that the euro is overpriced, with an expectation that the pair may undergo a correction and move to lower territory.

The euro momentum keeps building, as the currency keeps hitting new levels against the retreating US dollar. How high can the euro go? Friday’s data out of the Eurozone has generally been within market expectations, so the pair has not shown much reaction. The markets will shift their focus to Friday’s key employment and manufacturing releases out of the US. Any unexpected readings could affect the movement of  EUR/USD.

EUR/USD Fundamentals

• 8:15 Spanish Manufacturing PMI. Estimate 45.5 points. Actual 46.1 points.
• 8:45 Italian Manufacturing PMI. Estimate 47.6 points. Actual 47.8 points.
• 9:00 Eurozone Final Manufacturing PMI. Estimate 47.5 points. Actual 47.9 points.
• 9:00: Italian Monthly Unemployment Rate. Estimate 11.3%. Actual 11.2%.
• 10:00 Eurozone CPI Flash Estimate. Estimate 2.2%. Actual 2.0%.
• 10:00 Eurozone Unemployment Rate. Estimate 11.9%. Actual 11.7%.
• 13:30 US Unemployment Rate. Estimate 7.8%.
• 13:30 US Non-Farm Employment Change. Estimate 161K.
• 13:30 US Average Hourly Earnings. Estimate 0.2%.
• 13:30 US FOMC Member William Dudley Speaks.
• 14:00 US Final Manufacturing PMI. Estimate 56.1 points.
• 14:55 US Revised UoM Consumer Sentiment. Estimate 71.4 points.
• 14:55 US Revised UoM Inflation Expectations.
• 15:00 US ISM Manufacturing PMI. Estimate 50.8 points.
• 15:00 US Construction Spending. Estimate 0.6%.
• 15:00 US ISM Manufacturing Prices. Estimate 56.3 points.
• All Day: US Total Vehicle Sales. Estimate 15.2M.

*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.