EUR/USD Euro Falters After Recent Gains

EUR/USD has displayed a lot of volatility this week, and this trend is continuing in Friday trading. After rallying following some impressive US data, the euro has reversed direction, and is trading in the mid-1.33 range. There was good news out of Spain, as the country's borrowing costs dropped in government auctions. Looking at Friday's releases, there are no Eurozone economic releases scheduled for today. The markets will be waiting for the US to release Preliminary UoM Consumer Sentiment, which is one of the most important consumer indicators.

EUR/USD has taken traders for a roller-coaster ride this week, displaying sharp movement in both directions. We have seen the pair test the 1.34 level, but also fall all the way down to the 1.3260 range. The volatility shows no sign of letting up, as the euro has coughed up some of its recent gains in the Friday European session, and is trading in the 1.3340 range. The markets were busy on Thursday, as the US released a host of key economic data. Unsurprisingly, the data was a mix, although mostly of a positive nature. Market sentiment jumped as employment and housing numbers were outstanding, hitting multi-year highs. Unemployment Claims, which had looked weak earlier in January, bounced back with its best performance in five years, dropping to 331 thousand new claims. This easily beat the forecast of 369K. Housing Starts also were outstanding, improving to 0.95 million. This beat the forecast of 0.89M, and was the indicator’s highest level since June 2008.

Building Permits was not as spectacular, but also came within market expectations. The key indicator remained at 0.90 million, just shy of the estimate of 0.91M. The positive numbers were not echoed by the Philly Fed Manufacturing Index, which fell back into negative territory. The key manufacturing indicator plunged to -5.8 points, a very sharp drop. This surprised the markets, which had expected a small drop from 8.1 to 7.1 points. Coming on the heels of the Empire Manufacturing Index, which also looked dismal, these indicators point to significant contraction in the US manufacturing sector, which is weighing on the fragile economic recovery.

Back in Europe, the euro got a lift from good news out of Spain, as the markets were pleased by the results of Spain's government auctions. The Treasury sold over EUR 4.5 billion worth of bonds, which was within expectations. Five-year government bonds fetched an average yield of 3.77% earlier, down from 3.99% at last week's auction.  Spanish debt maturing in 2015 came in at an average yield of 2.71%, a strong improvement compared to the a similar sale last month, which saw average yields of 3.36%. The lower borrowing rates continue to give the Spanish government some breathing room, and so far it has been able to juggle its complicated fiscal and economic problems without resorting to further aid from the ECB.

The Euro has hit some impressive highs of late, but the same cannot be said of the Eurozone economy. The most recent forecasts predict weak growth throughout 2013, and a recovery has been hobbled by high unemployment, which is hovering close to 12% in the Eurozone. If the Eurozone is to get back on its feet later this year, it will need Germany to lead the way. However, the once mighty German economy continues to be a source of concern. Recent economic data points to serious trouble in the Eurozone’s largest economy. Trade Surplus dropped to its lowest levels since May, and German Factory Orders fell by 1.2%. German Industrial Production, an important manufacturing indicator, also looked sluggish. For the third straight month, German WPI fell well below the market forecast.  

Earlier in the week, the euro dropped following negative remarks by Jean-Paul Juncker, only to reverse direction after another senior ECB official stated the opposite. Juncker, held of the Eurogroup, shook up the markets after bluntly warning 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. 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.

 

EUR/USD for Friday, January 18, 2013

Forex Rate Graph 18/1/13

EUR/USD January 18 at 9:50 GMT
1.3350 H: 1.3336 L: 1.3336

EUR/USD Technical

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



The EUR/USD continues to show volatiilty on Friday. The pair tested the 1.34 line, our first line of resistance, but was unable to break through, as the pair hit a high of 1.3398. The next line of resistance is at 1.3480. On the downside, 1.3350 has found itself under strong pressure, and the pair briefly broke through this line earlier in the European session. Look for this support level to continue to see further activity today. There is strong support from the next line, which is 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, 1.3797 and 1.3858.

OANDA’s Open Position Ratios

The EUR/USD ratio is showing movement with an increase in short postions. This is reflected in the current movement of the pair, which is pushing downward. The short positions are the dominant component, making up just over 2/3 of the open positions. If the euro continues to weaken, we can expect the current movement in the ratio towards short positions to continue.

EUR/USD has kept traders busy this week with strong activity, and we are seeing the volatility continue on the last day of the trading week. Will the downward trend continue, or will we see yet another correction by the pair? The US releases consumer sentiment numbers later today, and the markets could react if there is an unexpected reading.

EUR/USD Fundamentals

  • 14:55 US Preliminary UoM Consumer Sentiment. Estimate 75.1 points.
  • 14:55 US Preliminary UoM Inflation Expectations.

*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.

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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.