EUR/USD – Euro Moves Higher, Testing 1.31

EUR/USD has edged higher, and is putting pressure on the 1.31 line. The pair has posted gains despite more disappointing data out of Germany. German Industrial Production was released on Wednesday, and the important manufacturing indicator was well below the estimate. However, French Industrial Production was a pleasant surprise, hitting a three-month high. The euro is likely to remain in a holding pattern prior to the ECB policy meeting later on Thursday. The markets are not expecting any dramatic developments, and most analysts anticipate that the benchmark interest rate of 0.75% will remain unchanged. However, an unexpected rate cut would likely have a major impact on EUR/USD. In economic news, there are a host of releases out of the US today. The highlight is the weekly Unemployment Claims.

All eyes will be on Brussels on Thursday, as the ECB holds an important policy meeting, the first of 2013. Currently, European interest rates are pegged at 0.75%, where they have held steady since July. The markets are not expecting a change in the current benchmark interest rate of 0.75%, but will be listening carefully for any hints of future cuts sometime in 2013. Given the persistent weakness of the Eurozone economy and recent weak data out of Germany, further cuts in the near future are a realistic possibility. The ECB did not reduce rates at the previous policy meeting, most likely out of concern that it could trigger uncertainty in the markets. This reason remains valid, and most analysts do not anticipate a rate cut on Thursday. For now, the ECB is likely to make do with unconventional monetary measures as it tries to bolster the Eurozone economy, which is showing weakness in many sectors, including employment, PMI and consumer and business confidence indicators.

The fiscal cliff crisis in the US went down to the wire last week, and more battles are imminent, as the hard-fought agreement left two critical issues – the debt ceiling and spending cuts, for another day. Democrats and Republicans are likely to tangle in Congress at the end of February, as the country reaches the $16.4 trillion debt ceiling. If the debt ceiling is not raised (yet again), the result would be to the default of the US government, which undoubtedly would cause chaos in the markets. Republicans have vowed to condition raising the debt ceiling on deep spending cuts, which the Democrats strongly oppose. In March, the fiscal cliff could again rear its head, as $110 billion in spending cuts will kick in if Congress cannot agree on a new budget.

Taking a look at fundamentals, German numbers continue to be a source of concern. This week’s data has been weak, with three disappointing releases out of Germany. Trade Balance surplus dropped to its lowest levels since May, while German Factory Orders fell by 1.2%. There was no relief from German Industrial Production, which was released on Wednesday. Although the indicator managed to push into positive territory for the first time since September, the gain was a paltry 0.2%, well below the estimate of 1.1%. The weak numbers threaten to undermine confidence in the Eurozone’s largest economy. Chancellor Angela Merkel is seeking a third term in national elections in September, but she will have her work cut out for her if the German economy continues to churn out more weak numbers.

EUR/USD for Thursday, January 10, 2013

EUR/USD January 10 at 10:20 GMT
1.3096 H: 1.3106 L: 1.3039

EUR/USD Technical

S3 S2 S1 R1 R2 R3
1.30 1.3030 1.3080 1.3130 1.3170 1.3240

EUR/USD has made an upward move in Thursday’s European session. The immediate resistance and support lines (R1 and S1 above) continue to remain intact, as the pair has been unable to sustain any movement for most of this week. The line of 1.3080 has seen a lot of activity, and is currently providing the pair with weak support. This is followed by support at 1.3030. On the upside, there is resistance at 1.3130. This line is steady, but could be tested if the euro continues to push upwards.

Current range: 1.3080 to 1.3130.

Further levels in both directions:
• Below: 1.3080, 1.3030, 1.30, 1.2960, 1.2890, 1.28, 1.2750 and 1.2690.
• Above: 1.3130, 1.3170, 1.3240, 1.3180, 1.3130, 1.3280 and 1.3350.

OANDA’s Open Position Ratios

EUR/USD has not shown much movement, but the same cannot be said about the ratio. The latter has posted significant movement in favor of long positions, although the short position component continues to command a comfortable majority. This change in the ratio could signal that the euro will make gains at the expense of the US dollar. The euro has moved higher in Thursday trading, but it remains to be seen if it can sustain this upward move.

EUR/USD has posted some gains in the European session, and briefly broke above the 1.31 line. Will the upward trend continue? The markets will be closely following the ECB rate announcement later today, and although no change is expected, we could see EUR/USD react if there is any news out of Brussels which affects market sentiment.

EUR/USD Fundamentals

• 7:45 French Industrial Production. Estimate 0.2%. Actual 0.5%.
• 7:45 French CPI. Estimate 0.4%. Actual 0.3%.
• 12:45 ECB Minimum Bid Rate. Estimate 0.75%.
• 13:30 ECB Press Conference.
• 13:30 US Unemployment Claims. Estimate 361K.
• 15:00 US Wholesale Inventories. Estimate 0.2%.
• 15:30 US Natural Gas Storage. Estimate -185B.
• 18:00 US 30-year Bond Auction.
• 18:10 US FOMC Member Esther George Speaks.
• 19:00 US FOMC Member James Bullard 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.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.