EUR/USD – Little Change after Strong US Numbers

EUR/USD is steady, as the pair trades in the low-1.33 range in Friday’s European session. The pair showed little reaction to strong US  numbers on Thursday, as unemployment and retail sales numbers impressed the markets. In Friday’s news, Eurozone CPI and Core CPI matched expectations. It’s a busy day in the US, including two key releases – PPI and Preliminary UoM Consumer Sentiment.

There was good news on Thursday from US releases, as all three key events beat expectations. Retail Sales jumped from 0.1% to 0.6%, surpassing the estimate of 0.4%. Core Retail Sales also climbed nicely, from -0.1% to 0.3%. This matched the market forecast. Unemployment Claims fell to 334 thousand, crushing the estimate of 354 thousand. These strong numbers will likely increase expectations that the Fed will scale back QE, which involves $85 billion in asset purchases every month.

The US got some good news earlier this week, as the S&P ratings agency revised the US sovereign credit rating from negative to stable. This is an important vote of confidence in the US economy, and means that there is less than a 1 in 3 chance of another downgrade in the next two years. S&P noted that a key factor in its revision was the agreement reached in the US Congress which averted the fiscal cliff crisis, which would have led to $600 billion in automatic tax increases and spending cuts and could have pushed the fragile US economy into recession. In 2011, S&P cut the US credit rating from AAA to AA, and the threat of another downgrade has been a concern of the markets. This news will likely improve market sentiment and could give a boost to the US dollar.

The S&P decision could also affect the US Federal Reserve’s QE program, which involves the purchase of $85 billion in assets each month. The Fed has said that it won’t scale back the program before it sees a stronger economy and an improving employment picture. Although US releases continue to be mixed, speculation is rising that the Fed could take action in the next few months. Since QE is US dollar-negative, any tapering of QE could give a boost to the greenback and jolt the currency markets.

In the Eurozone, there was an interesting matchup this week, with the ECB versus the Bundesbank. The two powerful central banks faced off in court, as Germany’s Federal Constitutional Court concludes its review the constitutionality of the ECB’s OMT (Outright Monetary Transactions) program. Under OMT, the ECB can purchases bonds from members whose economies are in trouble. Last week, ECB head Mario Draghi stated that OMT had helped bring stability to the European and global markets and was a key monetary policy measure. Draghi’s optimistic view lies in sharp contrast to that of Bundesbank President Jens Weidmann, who voted against OMT and is asked the court to reject the scheme. In previous cases involving the legality of ECB rescue mechanisms, the German court has given its approval, but has sometimes added provisos. So we can expect the court to rule that OMT is legal, although the approval could come with strings attached. It should be noted that the ECB is yet to make use of the OMT program, and has not bought a single bond from distressed Eurozone members. A ruling from the court is not expected until September, after German elections.

EUR/USD for Friday, June 14, 2013

EUR/USD 1.3321 H: 1.3374 L: 1.3314

EUR/USD Technical

EUR/USD is steady, as the pair trades quietly in the low-1.33 range. The proximate support and resistance lines remain intact (S1 and R1 above). On the downside, 1.3271 continues to provide support. There is a stronger support level at 1.3162. On the upside, the pair faces weak resistance at 1.3353. This is followed by a stronger resistance line at 1.3477.

• Current range: 1.3271 to 1.3353

Further levels in both directions:

• Below: 1.3271, 1.3162, 1.3100, 1.3050 and 1.3000
• Above: 1.3353, 1.3477, 1.3586 and 1.3690

OANDA’s Open Positions Ratio

The EUR/USD ratio is showing movement towards short positions. This is consistent with the current direction of the pair, as the euro has edged downwards. Short positions enjoy a substantial majority, indicating strong trader bias towards the US dollar making gains at the expense of the euro.

EUR/USD continues to trade quietly in the mid-1.33 range. The pair shrugged off three key US releases yesterday. We’ll see if this trend continues as the US releases key inflation and consumer confidence numbers later in the day.

EUR/USD Fundamentals

• 9:00 Eurozone CPI. Estimate 1.4%. Actual 1.4%.
• 9:00 Eurozone Core CPI. Estimate 1.2%. Actual 1.2%.
• 9:00 Eurozone Employment Change. Estimate -0.2%.
• 12:30 US PPI. Estimate 0.1%.
• 12:30 US Core PPI. Estimate 0.1%.
• 12:30 US Current Account. Estimate -110B.
• 13:00 US TIC Long-Term Purchases. Estimate 35.0B.
• 13:15 US Capacity Utilization Rate. Estimate 77.9%.
• 13:15 US Industrial Production. Estimate 0.3%.
• 13:55 US Preliminary UoM Consumer Sentiment. Estimate 84.9 points.
• 13:55 US Preliminary 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.