EUR/USD – Under Pressure as Worried Markets Eye Italian Stalemate

EUR/USD remains under pressure, but is steady in Wednesday trading. The euro took a hit after election results were announced in Italy on Monday, shedding over one cent. With no party emerging a clear winner, there are mounting concerns that a prolonged political stalemate could trigger a new crisis in the Eurozone. The 10-year Italian Bond Auction took place on Wednesday, and as expected, yields were higher, with an average of 4.83%. In the Eurozone, GfK German Consumer Climate came in as expected, and M3 Money Supply beat the estimate. In the US, New Home Sales and Consumer Confidence both looked razor sharp on Tuesday. There are two more key economic releases today – Core Durable Goods Orders and Pending Home Sales. As well, Fed Chairman Bernard Bernanke continues to brief lawmakers on Capitol Hill.

The results of this week’s parliamentary election in Italy shocked the country, and rattled markets in the Eurozone and beyond. The 5-Star Movement, which was largely a protest movement that was dubbed a “non-party”, managed to win more votes than any other single party. The Center-left bloc, headed by Pier Luigi Bersani, will have a majority in the lower house of parliament, but there is a stalemate in the Senate. This leaves the country in a political deadlock, as a workable government needs a majority in both houses. Prime Minister Monti’s party fared poorly at the polls, reflecting widespread dissatisfaction with Monti’s tough austerity measures. The inconclusive results were a worst-case scenario for the markets, and the euro took a hit on Monday, losing more than a cent against the US dollar. The euro has since leveled off, but remains under pressure.

In the US, the Federal Reserve is back in the spotlight. On Tuesday, Fed Chair Bernard Bernanke testified before the US Senate Banking Committee, and sought to reassure the markets that the Fed was intent on continuing the current round of QE. There had been some speculation after the release of minutes from the most recent policy meeting that the Fed was considering an end to QE, but Bernanke stated that Fed was likely to continue with QE and ultra-low interest rates. Bernanke will testify before the House of Representatives on Wednesday, but analysts are not expecting any dramatic new developments.

Tuesday’s US key releases were a dose of good news for the markets. CB Consumer Confidence hit 69.6 points, crushing the estimate of 60.8 points. New Home Sales also shone, jumping to 437 thousand. The market estimate stood at 381K. There was also good news on the manufacturing front, as the Richmond Manufacturing Index hit 6 points, easily beating the forecast of -4. On Wednesday, the US will release additional housing and manufacturing numbers. If the indicators can repeat Tuesday’s performance, we could see the dollar post some gains at the expense of the euro.

 EUR/USD for Wednesday, February 27, 2013

EUR/USD February 217 at 10:35 GMT

1.3093 H: 1.3120 L: 1.3042

EUR/USD Technical

EUR/USD has leveled off after sharp losses earlier in the week. The proximate support and resistance lines remain intact (S1 and R1 above). The pair continues to receive support at 1.3080. This is a weak line, and was briefly breached earlier on Wednesday. There is stronger support at the round number of 1.30. On the upside, 1.3130 is providing resistance. This is followed by resistance at 1.3170. 

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 point to movement towards long positions. The latter now enjoy a slight majority of the open positions. The current movement in the ratio is not reflected in the currency pair, which is under pressure and has not shown any upward momentum. If the ratio continues to be active, we could see some stronger fluctuation from EUR/USD.

The fallout continues after the surprise election results in Italy, and we can expect EUR/USD to remain under pressure as Italian politicians begin to construct the political puzzle and hopefully craft some type of workable coalition. There are some key housing and manufacturing releases out of the US later today, each of which are potential market-movers in their own right, which could affect the direction of EUR/USD.

EUR/USD Fundamentals

• 7:00 GfK German Consumer Climate. Estimate 5.9 points. Actual 5.9 points.
• 7:00 GfK German Import Prices. Estimate 0.5%. Actual 0.1%.
• 9:00 Eurozone M3 Money Supply. Estimate 3.2%. Actual 3.5%.
• 9:00 Eurozone Private Loans. Estimate -0.6%. Actual -0.9%.
• 9:10 Eurozone Retail PMI. Actual 44.5 points.
• 10:12 Italian 10-year Bond Auction. Actual 4.83%.
• 13:30 US Core Durable Goods Orders. Estimate 0.3%.
• 13:30 US Durable Goods Orders.Estimate -4.8%.
• 15:00 US Fed Chairman Bernard Bernanke Speaks. Bernanke will testify on the Semiannual Monetary Policy Report before the House Financial Services Committee.
• 15:00 US Pending Home Sales. Estimate 1.7%.
• 15:30 US Crude Oil Inventories. Estimate 2.4M.
• 17:30 ECB President Mario Draghi Speaks.

*Key releases are highlighted in bold

*All release times are GMT

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