EUR/USD – Slight Gains As German Consumer Climate Shines

EUR/USD has edged higher in Wednesday trading. In the European session, the pair continues to trade in the mid-1.36 range in the European session. In economic news, German releases continue to look sharp, as German Consumer Climate improved for the third straight month. Over in the US, all eyes will be on today’s Federal Reserve policy meeting, with expectations that the Fed will go ahead with another QE taper.

Will we see another QE taper on Wednesday? The markets are waiting for the Federal Reserve’s policy meeting later in the day, with most analysts predicting that the Fed will go ahead and reduce QE for a second straight month. Such a move would be an important vote of confidence in the US economy, and could give a boost to the US dollar against its major rivals. This policy meeting will be chairman Bernard Bernanke’s last hurrah, as Janet Yellen takes over the reins of the Fed on February 1.

The German economy continues to show improvement, much to the delight of the markets. GfK German Consumer Climate rose for the third straight month, climbing to 8.2 points in December, up from 7.6 a month earlier. The strong reading beat the estimate of 7.8 points. This release comes on the heels of German Ifo Business Climate, which topped the 110 level. The readings show that German businesses and consumers are optimistic about the economy as we begin 2014. Germany is the Eurozone’s largest economy, and the region will need the German locomotive to lead the way to an economic recovery.

The US housing sector continues to post worrying numbers. New Home Sales dropped sharply to 414 thousand, down from 464 thousand a month earlier. This was nowhere near the estimate of 457 thousand. This follows a disappointing Existing Home Sales release last week. The key indicator dropped to 4.87 million, down from 4.90 million a month earlier and shy of the estimate of the 4.94 million. This was the indicator’s fourth straight drop. The markets will be hoping for better news from Pending Home Sales on Thursday. A third straight housing reading below the estimate could weigh on the dollar.

Eurozone inflation indicators continue to point to weak inflation, and the situation as deteriorated to such an extent that the IMF has voiced its concern about the danger of deflation in Europe, which would hurt any moves towards stronger growth. The danger of deflation was noted in a report published by the organization as well as in a speech by IMF Managing Director Christine Lagarde at the World Economic Forum in Davos. With interest rates at a record low 0.25%, the ECB may have to consider reducing deposit rates below zero at its next policy meeting in order to push inflation indicators higher.

EUR/USD for Wednesday, January 29, 2014

EUR/USD January 29 at 10:20 GMT

EUR/USD 1.3675 H: 1.3685 L: 1.3647

EUR/USD Technical

• EUR/USD is not showing much activity in Wednesday trading.
• 1.3649 has switched to a support role. This is not a strong line and could face pressure during the day. This is followed by support at 1.3585.
• 1.3786 is providing strong resistance. This is followed by a resistance line at 1.3893, which is protecting the 1.39 line.
• Current range: 1.3649 to 1.3786

Further levels in both directions:

• Below: 1.3649, 1.3585, 1.3410 and 1.3347
• Above: 1.3786, 1.3893, 1.4000 and 1.4153

OANDA’s Open Positions Ratio

EUR/USD ratio is pointing to movement towards long positions in Wednesday trading, continuing the trend we saw yesterday. This is reflected in the pair’s current movement, as the euro has posted modest against the dollar. Most of the open positions in the ratio are short, indicative of trader bias towards the dollar continuing to move higher against the euro.

The euro has reversed directions and edged higher on Wednesday. We could see some movement from the pair during the North American session, as the US Federal Reserve announces whether it will taper QE.

EUR/USD Fundamentals

• 2:00 US President Barak Obama Delivers State of the Union Address.
• 7:00 GfK German Consumer Climate. Estimate 7.8 points. Actual 8.2 points.
• 9:00 Eurozone M3 Money Supply. Estimate 1.7%. Actual 1.0%.
• 9:00 Eurozone Private Loans. Estimate -2.3%, Actual -2.3%.
• 10:33 German 10-year Bond Auction. Actual 1.77%.
• 15:30 US Crude Oil Inventories. Estimate 2.2M.
• 19:00 US FOMC Statement.
• 19:00 US Federal Funds Rate. Estimate <0.25%.

*Key releases are highlighted in bold

*All release times are GMT

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