EUR/USD – Euro Steady After Recent Sharp Losses

The euro is stable on Monday, after sustaining sharp losses late last week. In the European session, EUR/USD is trading in the mid-1.37 range. The euro showed plenty of volatility last week, as the currency almost touched the 1.40 line, only to backtrack and fall around 150 points. On Friday, US JOLTS Jobs Openings disappointed as it softened in April. Monday has a very light schedule. There are no Eurozone events, and no major releases out of the US.

The ECB held its policy meeting last Thursday, and the central bank provided plenty of excitement for the markets. 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 does move above this line, it’s more than likely that the ECB will take action to reign in the high-flying currency.

Eurozone manufacturing data continues to disappoint, and of particular concern are weak figures from Germany, the Eurozone’s number one economy. Last week, German Industrial Production came in at -0.5%, well off the estimate of +0.3%. Earlier in the week, German Factory Orders slipped 2.8%, its sharpest decline since October 2012. This was nowhere near the estimate of 0.3%. French and Italian Industrial Production also declined in April, pointing to serious trouble in the manufacturing sectors of the major Eurozone economies.

US Unemployment Claims rebounded last week, as the key indicator dipped to 319 thousand. This beat the estimate of 328 thousand. The reading follows last week’s excellent Nonfarm Payrolls and Unemployment Claims. JOLTS Jobs Openings failed to keep pace, slipping to 4.01 million, well off the estimate of 4.21 million. With the employment picture brightening, market sentiment remains strong toward the US economy, and this could help the dollar make up some ground against the euro.

Federal Reserve Chair Janet Yellen testified before Congress on Wednesday and Thursday and gave a cautious thumbs-up to the economic recovery. She said that the economy has improved, but pointed to two sore spots – the job market remains weak and inflation is below the Fed’s target of 2%. Yellen stated that she therefore expects that low interest rate levels will continue 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 Monday, May 12, 2014

EUR/USD May 12 at 10:00 GMT

EUR/USD 1.3767 H: 1.3775 L: 1.3748

EUR/USD Technical

• EUR/USD is flat in Monday trade.
• 1.3649 is providing strong support to the pair. .
• 1.3786 has reverted to a resistance role following sharp losses by the euro late last week. It is a weak line and could face pressure during the day.
• 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 very strong gains in long positions since late last week. With the euro posting sharp losses on Thursday and Friday, numerous open short positions were covered, resulting in a greater percentage of open long positions. 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 is starting the week on a quiet note, trading in the mid-1.37 range. The pair is drifting in the European session.

EUR/USD Fundamentals

• 16:00 US FOMC Member Charles Plosser Speaks.
• 18:00 US Federal Budget Balance. Estimate 112.6B.

*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.