EUR/USD – Under Pressure As Markets Remain Wary

EUR/USD remains under pressure, and has edged downwards, as it trades close to the 1.31 line. The markets continue to be nervous about the political crisis gripping Italy. With no clear winner in this week’s parliamentary elections, there are fears that a prolonged deadlock could result in economic fallout in Italy and the Eurozone. There was some good news as investors showed a strong demand for 10-year Italian bonds, although yields did move higher. In the Eurozone, French Consumer Spending disappointed, hitting a five-month low. German numbers continued to look good, as Unemployment Change beat the estimate. US key releases have looked sharp this week, and the markets are hoping for more good news from today’s key releases – GDP and Unemployment Claims.

As the shock begins to wear off the Italian elections, the markets have settled down, but remain jittery. Even by Italian standards, the election was a shocker, with no clear party emerging as a clear winner. The 5-Star Movement, which was largely a protest movement that was dubbed a “non-party”, shocked pundits by winning the most votes of any party. The Center-left bloc, headed by Pier Luigi Bersani, will have a majority in the lower house of parliament, but there is a near-split in the Senate. This leaves the country in a political deadlock, as any coalition must have a majority in both houses. Outgoing Prime Minister Mario Monti’s centrist bloc fared poorly at the polls, reflecting widespread voter dissatisfaction with Monti’s tough austerity measures. The political deadlock has sent shock waves well  beyond Italy, and the stalemate could end up with Italians going back to the polls. There was some good news out of Italy as the 10-year bond auction was a success, but the yield jumped up to 4.83%, compared to 4.17% in the previous auction. The auction was widely seen as a test of investor sentiment following the election, and the markets were pleased that demand for Italian bonds was robust.

The Federal Reserve was in the spotlight this week as Fed Chief Bernard Bernanke sought to reassure the markets that the Fed was intent on continuing the current round of QE. Bernanke dismissed fears that the Fed’s current monetary policy could result in higher inflation or lead to a stock market bubble. There had been some speculation after the release of minutes from the most recent policy meeting, that the Fed was contemplating an end to QE, but Bernanke stated that Fed plans to continue QE and the current policy of ultra-low interest rates.

Far away from the political crisis in Italy, the US posted solid economic releases this week. On  Tuesday, Consumer Confidence and New Home Sales looked very sharp. On the manufacturing front, the Richmond Manufacturing Index rebounded nicely. Wednesday brought more good news as Core Durable Goods Orders gained 1.9%, while Pending Home Sales jumped 4.5%.  Both key releases were well above expectations. The fly in the ointment was Durable Goods Orders, which missed the estimate. The markets are hoping to see more good news from Thursday’s key releases – US GDP and Unemployment Claims. If these releases impress, we could see the dollar make some inroads against the euro.

EUR/USD for Thursday, Feb 28, 2013

EUR/USD Feb 28 at 10:45

GMT 1.3108 H: 1.3158 L: 1.3102

EUR/USD Technical

EUR/USD is under pressure, and is struggling to stay above the 1.31 line. The pair is facing resistance at 1.3130. This is a weak line and was breached earlier. This is followed by resistance at 1.3170. On the downside, there is support at 1.3080. The next support level is at the round number of 1.30. This line has not been tested since December 2012.

Current range: 1.3080 to 1.3130

Further levels in both directions:

• Below: 1.3080, 1.30, 1.2950, 1.2882 and 1.2802
• Above: 1.3130, 1.3170, 1.3280, 1.3350, 1.34, 1.3480 and 1.3568

OANDA’s Open Position Ratios

The EUR/USD ratio continues to showing strong movement, but has reversed directions, as the current movement is towards short positions. We are currently seeing a downward movement by the pair, although it is modest in scope, with the euro edging downwards in Thursday trading. Given the activity in the ratio, the euro could continue to lose ground.

With the fallout from the Italian elections continuing, we can expect the euro to remain under strong pressure. There are two additional US key releases scheduled on Thursday, and each should be treated as market movers which can affect the direction of EUR/USD.

EUR/USD Fundamentals

• All Day: German Preliminary CPI. Estimate 0.7%.
• 7:45 French Consumer Spending. Estimate -0.1%. Actual -0.8%.
• 8:55 German Unemployment Change. Estimate -5K. Actual -3K.
• 10:00 Eurozone CPI. Estimate 2.0%. Actual 2.0%.
• 10:00 Eurozone Core CPI. Estimate 1.5%. Actual 1.3%.
• 13:30 US Preliminary GDP. Estimate 0.5%.
• 13:30 US Unemployment Claims. Estimate 361K.
• 13:30 US Preliminary GDP Price Index. Estimate 0.6%.
• 14:45 US Chicago PMI. Estimate 54.6 points.
• 15:30 US Natural Gas Storage. Estimate -165B.
• 17:30 US FOMC Member Sarah Bloom Raskin 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.