EUR/USD – Sharp Losses After Fed Taper

EUR/USD dropped sharply on Thursday, as the pair lost about 100 points on the day. The euro has edged lower on Friday, trading in the mid-1.35 range early in the European session. The euro took a hit after the US Federal Reserve announced another $10 billion reduction in its QE program. Taking a look at Friday’s events, German Retail Sales posted a sharp decline in December. Eurozone CPI fell short of the estimate and their was little change in the Eurozone Unemployment Rate. In the US, today’s highlight is UoM Consumer Sentiment.

German releases have had a good run in January, but that came to a crashing halt on the last trading day of the month. Retail Sales slid by 2.5%, its sharpest drop since October 2012. The markets had expected a weak gain of 0.2%. December releases have looked solid, led by Unemployment Change, Consumer Climate and Ifo Business Climate rose, indicating that German businesses and consumers are optimistic about the economy as we begin 2014. Will the Retail Sales release prove to be just a blip? Germany is the Eurozone’s largest economy, and the region will need the country to lead the way to an economic recovery on the continent.

Over in the US, Unemployment Claims disappointed, coming in above the estimate for the first time in four weeks. The key indicator rose to 348 thousand, up sharply from 326 thousand a week earlier. This was higher than the estimate of 331 thousand. The news was even worse from Pending Home Sales. The key indicator plunged 8.3%, its sharpest drop since April 2011. The markets were caught off guard by the news, as the estimate stood at -0.1%. This will raise concerns about the health of the US housing sector, as Existing Home Sales and New Home Sales also missed their estimates in December. The silver lining was courtesy of Advanced GDP, which posted its best reading in two years, with a strong gain of 3.2% in Q4. This was just shy of the estimate of 3.3%, and a nice rise from the Q3 reading of 2.8%.

In a highly anticipated decision, the Federal Reserve pressed the taper trigger for a second month in a row on Wednesday . This reduces its stimulus program (QE) by another $10 billion, reducing the bond-buying scheme to $65 billion each month. Fed chair Bernard Bernanke has indicated that the Fed plans to wind up QE by the end of the year, so we can expect further tapers, barring any surprise downturns in the US economy. Wednesday’s policy statement was Bernard Bernanke’s last hurrah, as Janet Yellen takes over the reins as the Fed chair on February 1.

EUR/USD for Friday, January 31, 2014

EUR/USD January 31 at 10:05 GMT

EUR/USD 1.3522 H: 1.3560 L: 1.3518

EUR/USD Technical

• EUR/USD has edged lower in Friday trading.
• 1.3410 is providing strong support. This is followed by a support line at 1.3347.
• 1.3585 has reverted to a resistance line. This is followed by resistance at 1.3649.
• Current range: 1.3410 to 1.3585

Further levels in both directions:

• Below: 1.3410, 1.3347, 1.3267 and 1.3189
• Above: 1.3585, 1.3649, 1.3786, 1.3893 and 1.4000

OANDA’s Open Positions Ratio

EUR/USD ratio is pointing to movement towards long positions in Friday trading, continuing the trend we have seen throughout the week. This is not reflected in the pair’s current movement, as the euro has edged lower against the dollar. Most of the open positions in the ratio are short, indicative of trader bias towards the dollar continuing to gain ground against the euro.

The euro remains under pressure on Friday after sharp losses a day earlier and continues to point downwards in the European session.

EUR/USD Fundamentals

• 7:00 German Retail Sales. Estimate -2.5%. Actual 0.2%.
• 7:45 French Consumer Spending. Estimate -0.2%. Actual -0.1%.
• 9:00 Italian Monthly Unemployment Rate. Estimate 12.7%. Actual 12.7%.
• 10:00 Eurozone CPI Flash Estimate. Estimate 0.9%. Actual 0.7%.
• 10:00 Eurozone Unemployment Rate. Estimate 12.1%. Actual 12.0%
• 13:30 US Core PCE Price Index. Estimate 0.1%.
• 13:30 US Employment Cost Index. Estimate 0.4%.
• 13:30 US Personal Spending. Estimate 0.2%.
• 13:30 US Personal Income. Estimate 0.2%.
• 14:45 US Chicago PMI. Estimate 59.8 points.
• 14:55 US Revised UoM Consumer Sentiment. Estimate 81.1 points.
• 14:55 US Revised UoM Inflation Expectations.
• 18:15 US FOMC Member Richard Fisher Speaks.

*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.