EUR/USD – Rangebound After Sharp Gains

EUR/USD has taken a break after posting strong gains on Thursday. The pair pushed up close to one cent, as key manufacturing and employment data out of the US faltered. On Friday, the pair has gone silent, and is trading around the 1.3270 line. Friday’s calendar is light, with just three releases on the schedule. In the Eurozone, German Import Prices disappointed, posting a fourth straight decline. The indicator dropped from -0.4% to -0.8%, way off the estimate of a 0.4% gain. In the US, Friday’s highlight is the Revised UoM Consumer Sentiment. The indicator has posted two strong reading above the 80-point level, and little change is expected in the upcoming release.

The euro gained close to a cent on Thursday, taking advantage of some weak US numbers. Unemployment Claims was a disappointment, rising from 334 thousand to 343 thousand. The estimate stood at 339 thousand. Core Durable Goods Orders, another key release, slipped badly, dropping from 0.7% to a flat 0.0%. The markets had expected another respectable gain, with an estimate of 0.5%. There was some good news from Durable Goods Orders, a second tier release. The manufacturing indicator climbed from 3.6% to 4.2%, blowing past the estimate of 1.1%. The US economy may be pointed in the right direction/ but the employment and core durable goods releases underscore that the economy has plenty of room to improve.

This week’s US housing releases has analysts scratching their heads, as the releases pointed in opposite directions. Earlier in the week, Existing Home Sales dropped from 5.18 million to 5.08 million, way off the forecast of 5.27 million. However, New Home Sales soared on Wednesday, jumping from 476 thousand to 496 thousand, well above the estimate of 482 thousand. This was the key housing indicator’s best performance in five years. With mixed housing releases this week, the markets will have to wait for the August releases to get a better handle on the direction of the US housing industry.

In the Eurozone, there was good news earlier in the week, as Services and Manufacturing PMIs out of France, Germany and the Eurozone all improved and beat their estimates. The news was especially good out of Germany, as Services PMI climbed above the 50 level for the first time since February, while Manufacturing PMI improved to 52.5 points. The 50-point level separates between contraction and expansion. The improving PMIs point to increasing confidence on the part of purchasing managers with regard to the manufacturing and services sectors. Further strong releases from these industries could be a sign that the Eurozone is finally on the road to economic recovery.

Most analysts would agree that an unemployment rate of over 26% is not news to celebrate, but it was positive news for Spain, which saw its staggering unemployment rate decline from 27.2% to 26.3%. This marked the first monthly drop since July 2011, when the unemployment rate was around 21%. Spain has posted some good numbers data lately, leading Spain’s finance minister de Guindos to declare that Spain’s economy is improving “beyond seasonal effects”. The markets are hoping that the finance minister is correct, and that Spain’s economy continues to post solid numbers after the summer.

EUR/USD for Friday, July 26, 2013

EUR/USD 1.3274 H: 1.3296 L: 1.3260

EUR/USD Technical

EUR/USD is trading in a narrow range in Friday trading. After strong gains on Thursday, the pair is testing resistance at 1.3275. This line has seen action in both the Asian and European sessions. This is followed by strong support at the round number of 1.3400.

On the downside, EUR/USD is receiving support at 1.3162. This line has strengthened following the pair’s jump on Thursday. The next support level is at 1.3100.

• Current range: 1.3162 to 1.3275

Further levels in both directions:

• Below: 1.3162, 1.3100, 1.3050, 1.3000, 1.2943 and 1.2844
• Above: 1.3275, 1.34, 1.3476 and 1.3585

OANDA’s Open Positions Ratio

EUR/USD ratio is showing a sharp move towards short positions. This is likely due to the Euro’s strong gains on Thursday, which led to long positions being covered, resulting in a larger percentage of open short positions. This is not reflected in the pair, which is trading very quietly on Thursday. A large majority of the ratio’s positions are short, indicating that trader sentiment expects a correction in which the dollar will improve against the euro.

After a couple of uneventful days, the euro showed some muscle on Thursday, climbing to the high-1.32 range. The pair has steadied on Friday, and with no major releases due out of the US, we could see more drifting from EUR/USD right into the weekend.

EUR/USD Fundamentals

• 6:00 German Import Prices. Estimate 0.4%. Actual -0.8%.
• 13:55 Revised UoM Consumer Sentiment. Estimate 84.0 points.
• 13:55 Revised UoM Inflation Expectations.

*Key releases are highlighted in bold

*All release times are GMT

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