EUR/USD – Plunges After Negative Draghi Comments

EUR/USD was down sharply after the ECB policy meeting on Thursday. Speaking after the meeting, ECB head Mario Draghi, warned that the high value of the euro was a risk to growth in the Eurozone, and the euro responded by shedding more than a cent against the US dollar. In Friday’s European session, the pair is struggling, as it trades in the low-1.34 range. In economic news, US Unemployment Claims was another disappointment, as the indicator failed to meet the market estimate. There was positive news to kick off Friday, as German Trade Balance hit a three-month high. Today’s major release is US Trade Balance.

The euro began its recent sharp rally following positive remarks by ECB head Mario Draghi about the Eurozone economy. Speaking at a press conference on Thursday, Draghi once again lit a fire under the currency, only this time in the opposite direction. Draghi warned that the high-flying euro was affecting prices and economic growth in the Eurozone. He stated that the exchange rate was not a policy target, but the ECB would “closely monitor money market developments”. The markets wasted little time in reacting to these comments, and the euro plunged, losing over a cent on the day. Almost lost in all the excitement was the fact that the ECB maintained its benchmark interest rate at 0.75%.

 In a speech earlier this week before the European Parliament, French President Hollande called on the Eurozone to set a “medium term” target for the exchange rate of the euro. Hollande’s remarks were a response to the high value of the currency, which is hurting French exports and the manufacturing industry. However, German officials were quick to state their opposition to such a move. German Economy Minister Phillipp Roesler summed up the view in Berlin, declaring that “the objective must be to improve competitiveness and not to weaken the currency”. While the German economy is showing recovery signs, the French economy continues to stumble, and Hollande is grabbing for any crutches he can lay his hands on, including a more competitive euro. The question of currency intervention will not disappear anytime soon, with heavyweights France and Germany at loggerheads over the issue.

Germany’s economy may not be booming, but there are some signs of improvement in the Eurozone’s largest economy, as underscored by Friday’s positive Trade Balance indicator. The country’s monthly surplus jumped to 16.8 billion euros, surprising the markets, which had expected a reading of 13.7 billion. This was the best showing since last November. German manufacturing numbers have also shown improvement, and recent employment figures were excellent. If the Eurozone is to get back on track in 2013, it will need a strong German economy to lead the way.

In the US, Unemployment Claims continued to disappoint the markets. The key indicator had some sizzling readings in January, but has fallen from its dizzying heights in a hurry. For the second straight week, the key indicator missed the market estimate. There were 368 thousand new claims, missing the forecast of 361 thousand. The markets are concerned that the weaker employment numbers will weigh on the fragile US recovery. If we continue to see further weak US data, this will likely affect the direction of EUR/USD.

EUR/USD for Friday, February 8, 2013

EUR/USD February 8 at 10:00 GMT

1.3418 H: 1.3428 L: 1.3381

EUR/USD Technical

EUR/USD has leveled off after Thursday’s sharp losses. The round number of 1.34 is a providing weak support, and could face further activity before the trading week wraps up.  There is stronger support at 1.3350. On the upside, there is resistance at 1.3480. This line has strengthened as the pair struggles to stay above the 1.34 line.

Current range: 1.34 to 1.3480.

Further levels in both directions:

• Below: 1.34, 1.3350, 1.3280, 1.3240 and 1.3170.
• Above: 1.3480, 1.3627, 1.3690, 1.3745, 1.3796, 1.3858 and 1.3936 and 1.40.

OANDA’s Open Position Ratios

The EUR/USD ratio  continues to shift towards long positions. After Thursday’s plunge, the euro has edged higher in Friday’s European session. The activity in the ratio could signal that we will see the euro continue to recover, and push away from the 1.34 line.

Mario Draghi pulled out another rabbit from his hat, and the euro plunged on Thursday after his negative remarks about the high value of the euro. The effect of Draghi’s comments may have a very short shelf life, and we could see the euro bounce back towards the 1.35 level.

EUR/USD Fundamentals

• 1:00 US FOMC Member Charles Evans Speaks.
• 7:00 German Trade Balance. Estimate 13.7. Actual 16.8B.
• 7:45 French Government Budget Balance. Actual -87.2B.
• 9:00 Italian Industrial Production. Estimate 0.2%. Actual 0.4%.
• All Day: EU Economic Summit (Day 2)
• 13:30 US Trade Balance. Estimate -45.7B.
• 15:00 US Wholesale Inventories. Estimate 0.5%

*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.