EUR/USD – Lower As Eurozone Industrial Data Disappoints

EUR/USD lost ground as the markets reacted to disappointing industrial data out of the Eurozone on Monday. Both Eurozone and Italian Industrial Production releases were well below expectations, as Eurozone data continues to look weak early in 2013. German releases also continue to be a source of concern after a string of disappointing numbers. Despite the weak data, the euro continues to look strong, and is trading in the mid-1.33 range. After a quiet day on Monday, the US markets are in full swing today, with three key releases – Core Retail Sales, PPI, and Retail Sales.

The euro has taken off since the ECB rate decision on Thursday, and has since gained about three cents. On Monday, the euro pushed as high as the 1.34 line, but has settled back in the mid-1.33 range. We have not seen EUR/USD trade at these levels since April, as the euro starts off 2013 with an impressive start. Will the upward move continue? At its policy meeting on Thursday, the ECB maintained it benchmark interest rate at its current level of 0.75%. Although this was widely expected, the market sentiment shot up after the announcement. Why? First, the ECB’s decision to stay the course was unanimous, in contrast to the previous rate announcement in December, where there were differing views expressed.

Although growth has weak and unemployment persistently high, the ECB showed a vote of confidence in the Eurozone economy by avoiding a rate cut in order in order to bolster economic growth Eurozone. This was underscored in remarks by ECB head Mario Draghi in a press conference after the rate announcement. Draghi stated that market confidence had improved, and although the Eurozone had not turned the corner just yet, he was optimistic that the economy would show improvement later on in 2013. Second, and no less important to the markets, there was no indication from the ECB that it might resort to lowering rates in the near future. In doing so, the ECB is sending a strong message to the markets that for the near future at least, it is likely to make do with unconventional monetary steps in order to bolster the Eurozone economy.

Despite this optimistic message from the ECB, recent data from the Eurozone has not been positive. Unemployment continues to be major headache, with the Eurozone rate stuck at 11.8%, and Greece and Spain reeling from 25% unemployment. PMIs continue to point to contraction in the economy, and Monday’s industrial production numbers were well below forecast. France and Italy have imposed austerity measures to try and regain their economic footing, but any recovery promises to be slow. Even Germany, the locomotive of Europe, is in trouble, with a string of disappointing releases. If we don’t see improvement in 2013, market sentiment will tumble, and likely take the euro with it.

The US Trade Deficit ballooned last month, hitting its highest levels since April. The sharp demand for imports signals that US consumers are purchasing more imported goods, which is good news for the global economy. At the same time, the US recovery is still having trouble getting on track, as the US continues to release mixed data. Unemployment figures have not looked good of late, and the staggering debt load will have to be dealt with by a divided Congress. In a closely watched speech on Monday, Federal Reserve Chairman Bernard Bernanke added his concern about the speed of the US recovery. Bernanke noted that the economy has shown signs of improvement, but he was still unsatisfied with the economy’s progress.

EUR/USD for Tuesday, January 15, 2013

Forex Rate Graph 15/1/13

EUR/USD January 15 at 9:35 GMT
1.3372 H: 1.3394 L: 1.3334

EUR/USD Technical

S3 S2 S1 R1 R2 R3
1.3240 1.3280 1.3350 1.34 1.3480 1.3568

EUR/USD briefly tested the 1.34 line on Monday, but then retracted to more comfortable territory in the mid-133 range. In Tuesday’s Asian session, the pair lost ground, touching a low of 1.3339, before consolidating at 1.3353. The pair has edged higher in the European session, but is not showing a lot of activity. The line of 1.3350 is providing weak support, and 1.3280 is stronger. On the upside, 1.34 remains intact. This is a psychologically important level, and if it is breached, we could see the euro push hard in an upward direction.

Current range: 1.3350 to 1.34.
Further levels in both directions:
• Below: 1.3350, 1.3280, 1.3240, 1.3170, 1.3130, 1.3080, 1.3030, 1.30 and 1.2960.
• Above: 1.34, 1.3480, 1.3568 and 1.3627, 1.3797 and 1.3858.

OANDA’s Open Position Ratios

EUR/USD ratio remains constant, after we saw strong movement towards short positions in the past few days. The long positions are the dominant component, making up just over 2/3 of the open positions. A renewal of movement in the ratio could signal a move by the pair, which is looking steady, as it trades in the mid-1.33 range.
The euro continues to look sharp, and has gained about three cents since late last week. The rally has tapered off, but with a host of key economic releases out of the US on Tuesday, we could see EUR/USD show some fluctuation, if there are any unexpected surprises.

EUR/USD Fundamentals

• 7:00 German Final CPI. Estimate 0.9%. Actual 0.9%.
• 7:45 French Government Budget Balance. Actual -103.4B.
• 10:00 Eurozone Trade Balance. Estimate 8.2B.
• 13:00 US FOMC Member Eric Rosengren Speaks.
13:30 US Core Retail Sales. Estimate 0.2%.
• 13:30 US PPI. Estimate -0.1%.
• 13:30 US Retail Sales. Estimate 0.2%.

• 13:30 US Core PPI. Estimate 0.2%.
• 13:30 US Empire State Manufacturing Index. Estimate 1.9 points.
• 15:00 US Business Inventories. Estimate 0.3%.

*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.