EUR/USD Euro Roars Back After Recent Losses

After posting losses during the week, EUR/USD bounced back early in Thursday’s European session. The euro has gained about a cent on Thursday, and has climbed up to the 1.360 range. The euro got some help after positive comments from a senior ECB member. There is only one release out of the Eurozone, as the markets await the publication of the ECB Monthly Bulletin. In the US, it will be a busy day, with three key releases – Building Permits, Unemployment Claims and the Philly Fed Manufacturing Index.

Just a day after the euro dropped following negative remarks by Jean-Paul Juncker, the currency moved higher after another senior ECB official stated the opposite. Juncker, held of the Eurogroup of finance ministers, shook up the markets after negative comments at an event in Luxemburg. Juncker bluntly warned that the “euro foreign exchange rate is dangerously high”. The markets jumped on his comments, and the euro quickly headed south, falling below the 1.33 line. On Wednesday, a member of the ECB governing council, Ewald Nowotny, weighed in, stating that the Eurozone situation had shown improvement, and the ECB was not concerned about the recent gains by the euro. These positive sentiments gave a boost to the euro, as it barreled above 1.33. So what does the ECB really think about the value of the euro? Market players, scrambling to keep up with the latest comments of the day about the value of the euro, must be hoping for more action and less talk from senior ECB officials.

We are seeing plenty of key releases out of the US, but what they are telling us about the direction of the US economy and the extent of the recovery remains unclear. The numbers continue to be a real mix – some are good, some are bad, while others fall within the market estimates. Retail Sales, for example, looked sharp in December, rising 0.5%, and hitting a four-month high. These positive numbers were not reflected in manufacturing data, which continue to look anemic. The Empire State Manufacturing Index dropped -7.8 points, shocking the markets, which had anticipated a gain of 1.9 points. This important index has posted consecutive declines since July, and points to serious weakness in the US manufacturing sector. Unemployment numbers have not looked good in January, and the markets are sure to respond if Thursday’s employment figures are not within the estimate.

In a report released this week, the World Bank downgraded its forecast for global growth. In its Global Economic Prospects report, which is issued twice a year, the prestigious institution said that global growth in 2013 would be 2.4%. This was down from the 3.0% estimate the World Bank stated in its June 2012 report. The World Bank noted persistent weaknesses in the economies of developed nations, citing austerity measures, high unemployment and weak business confidence. The report also sounded the alarm over the damage in market confidence due the ongoing fiscal battles in the US, and urged a quick resolution of the issue so as to ensure market stability.

US Federal Reserve Chairman Bernard Bernanke delivered remarks earlier this week, but those waiting for a dramatic announcement were disappointed.  Bernanke steered away giving any clues about when the current round of QE might end and did little more than express his concern about the speed of the US recovery. He noted that the economy has shown signs of improvement, but he was still unsatisfied with the economy’s progress. Given these sentiments, it seems unlikely that the Fed will consider ending the current round of QE in 2013, barring a spectacular recovery by the US economy during the year. Underscoring this point, the president of the San Francisco Federal Reserve Bank, John Williams, stated that he expected the Fed to continue its bond buying program “well into the second half of 2013.” Although Bernanke avoided talking about QE, he was more forthcoming with regard to the debt ceiling issue, which is likely to be a hot topic, if not a full-blown crisis, in February. The US is quickly approaching its debt limit of $16.4 trillion, and Bernanke said Congress must act and raise the debt ceiling. He further noted that tinkering with interest rates will not make much difference, but that if Congress ensures that the country’s fiscal house is in order, interest rates would gradually rise as the economy improves.

EUR/USD for Thursday, January 17, 2013

Forex Rate Graph 17/1/13

EUR/USD January 17 at 9:35 GMT

1.3365  H: 1.3368 L: 1.3370

EUR/USD Technical

S3

S2

S1

R1

R2

R3

1.3240

1.3280

1.3350

1.34

1.3480

1.3568

EUR/USD has recovered nicely in Thursday’s European session. The next line of resistance is at the round number of 1.34. This line could face pressure if the euro continues to push upwards. This is followed by resistance at 1.3480. On the downside, 1.3350 has reverted to a support role, and is a weak line. The pair is receiving stronger support at 1.3280.

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 and 1.3797.

 

OANDA’s Open Position Ratios

EUR/USD ratio has not been showing much movement, although this could change, given the volatility of the pair over the past few days. Trader sentiment continues to favor short positions by a large margin, thus indicating an expectation that the euro rally will taper off.

The euro has rebounded with strong gains, after posting losses throughout much of the week. Will the upward trend continue? The pair did not react to key US data earlier in the week, but we may see further fluctuation, with the US releasing key employment, housing and manufacturing data later on Thursday.

EUR/USD Fundamentals

  • 9:00 ECB Monthly Bulletin.
  • 13:30 US Building Permits. Exp. 0.91M.
  • 13:30 US Unemployment Claims. Exp. 369K.
  • 13:30 US Housing Starts. Exp. 0.89M.
  • 15:00 US Philly Fed Manufacturing Index. Exp. 7.1 points.

*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.