EUR/USD Steady as US Data disappoints, German Numbers Shine

EUR/USD continues to look strong, as the pair trades in the 1.3560 range. Economic news out of Germany was mixed, as Retail Sales declined, but the Unemployment Change was very sharp. In the US, the GDP release looked dismal, posting its first decline since 2009. The Federal Reserve wrapped up its policy meeting, and said that QE3 would continue. Thursday is another busy day, with the markets keeping a close eye on US Unemployment Claims.

US key releases continue to be mixed, pointing to a bumpy recovery. The markets got a jolt from an abysmal GDP reading, as the US economy declined by 0.1% in Q4. Although a very modest loss, there is bound to be negative market reaction, as this was the first decline since 2009, and the markets had anticipated a 1.1% gain. There was some postive employment news, as the ADP Non-Farm Employment Change came in at 192 thousand new jobs, well above the estimate of 164 thousand. The markets will be hoping that Thursday’s Unemployment Claims continue to shine, after some excellent readings recently.

All eyes were on the Federal Reserve this week, but there were no surprise developments as the powerful US central bank wrapped up a two-day policy meeting. Analysts were looking for clues as to an end date for the current Quantitative Easing program (QE3), but no such hints were forthcoming. The Fed stated it would continue its open-ended QE3 program until the outlook for the labor market “improves substantially”. This put to rest any doubts that the current round of QE, under which the Fed is purchasing $85 billion a month in securities, will be terminated anytime soon. At the same time, the Federal Reserve took note of increased job hirings, stronger consumer and business spending, and some improvement in the US housing sector. The Fed also maintained its ultra-low benchmark interest rate, saying there would be no change until unemployment drops below 6.5%. With US unemployment close to 8%, we will likely be hearing this refrain for the foreseeable future.

If the Eurozone is to get back on its feet in 2013, the German locomotive will have to get back on track. So how is the German economy doing? The answer seems to be lukewarm, based on recent data. Business Sentiment has improved, and the most recent employment numbers were outstanding. German Unemployment Change fell by 16 thousand, its best performance since last March. At the same time, inflation indicators have been in negative territory, pointing to subdued economic activity. The manufacturing sector is struggling, and Retail Sales fell by 1.7%, well below the estimate. The markets are well aware that as goes Germany, so goes Europe, and will be hoping for better news from the bloc’s largest economy.

EUR/USD for Thursday, January 31, 2013

1.3564 H: 1.3584 L: 1.3544

EUR/USD Technical

EUR/USD continues to trade in the mid-1.35 range, and the proximate support and resistance lines remain in place (S1 and R1 above). 1.3536 continues to provide the pair with weak support. 1.3480 is a stronger support level. On the upside, 1.3627 is providing resistance. This line has has held firm since November 2011, but could face pressure if the pair makes a move towards the 1.36 line.

Current range: 1.3536 to 1.3627.

Further levels in both directions:

• Below: 1.3536, 1.3480, 1.34, 1.3350, 1.3280, 1.3240 and 1.3170.
• Above: 1.3627, 1.3690, 1.3745 and 1.3858.

OANDA’s Open Position Ratios

The EUR/USD ratio has been fairly quiet. This lack of activity is reflected in the currency pair, which has leveled off after the recent strong gains by the euro. Trader sentiment remains strongly biased towards short postions, indicating a prevailing view that the euro is overpriced, with an expectation that the pair may undergo a correction and move to lower territory.

The euro is trading comfortably in the mid-1.35 range. Will this prove to be just a short pause before a push towards the 1.36 line? The euro could get some help from excellent German employment numbers earlier on Thursday. The markets will also be keeping an eye on US Employment Claims, a key release which could impact on EUR/USD.

EUR/USD Fundamentals

• 7:00 German Retail Sales. Estimate 0.1%. Actual -1.7%.
• All Day: German Preliminary CPI. Estimate -0.5%
• 7:45 French Consumer Spending. Estimate 0.3%. Actual 0.0%.
• 8:55 German Unemployment Change. Estimate 9K. Actual -16K.
• 12:30 US Challenger Job Cuts.
• 13:30 US Unemployment Claims. Estimate 362K.
• 13:30 US Core PCE Price Index. Estimate 0.1%.
• 13:30 US Employment Cost Index. Estimate 0.6%.
• 13:30 US Personal Spending. Estimate 0.4%.
• 13:30 US Personal Income. Estimate 0.7%.
• 14:45 US Chicago PMI. Estimate 51.1 points.
• 15:30 US Natural Gas Storage. Estimate -202B.

*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.