EUR/USD – Euro Edges Lower Ahead of Eurogroup Meeting

After a busy week, EUR/USD is steady in early Monday trading, ahead of a key Eurogroup meeting later today. The pair is trading just above the 1.33 level. US releases ended last week on a sour note, as consumer sentiment looked very weak. The US markets are closed today for Martin Luther King Day. In the Eurozone, German PPI, today’s lone release, declined for a second straight month.

The Eurogroup of Eurozone finance ministers will meet on Monday for the first time in 2013. The main order of business will be a look at direct bank recapitalization, whereby the European Stability Mechanism, which is the Eurozone’s emergency fund, would provide directly to banks, rather than to national governments. This is intended to replace the process whereby countries simply borrow more funds to bolster their ailing banks. However, there are deep divisions on the issue within the Eurozone, and Monday’s talks with be preliminary in nature. The frontline members who are being touted for further aid include Spain, Cyprus and Greece.

There are additional developments out the Eurogroup, which will also be replacing its chairman, as Jean-Claude Juncker, who headed the Eurogoup of finance ministers for the past eight years, will be stepping down from this position on Monday. Juncker, a staunch defender of the euro and of European unity, presided over the global financial crisis in 2008, and the more recently, the Eurozone debt crisis, which threatened to destroy the euro. He will be replaced by Jeroen Dijsselbloem, the finance minister of the Netherlands. There was considerable jockeying between France and Germany as to who would be Juncker’s successor, and Dijssselbloem was considered a compromise candidate. The new head will certainly have his work cut out for him in Brussels, as he only became the Dutch finance minister in November.

The US continues to send out mixed messages in its economic releases, making it difficult to evaluate the extent of the US recovery. Housing and Employment numbers looked excellent, hitting multi-year highs. The good news, however, was tempered by manufacturing and consumer confidence data. The  Philly Fed Manufacturing Index surprised the markets with a very sharp drop, and fell back into negative territory. 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. Last week wrapped up with Preliminary UoM Consumer Sentiment, which had its worst performance in a year. The indicator dropped to 71.3 points, well below the forecast of 75.1 points. Consumer spending and confidence is a critical component of economic growth, and these numbers will have to improve significantly if the US recovery is to gain traction. The euro as managed to hold onto most of its recent gains against the US dollar, despite the mixed data out of the US. However, Eurozone numbers have not looked good recently, and the euro could lose ground if this troubling trend continues.

EUR/USD for Monday, January 21, 2013

EUR/USD January 21 at 9:50 GMT 1.3301 H: 1.3333 L: 1.3301

EUR/USD Technical

EUR/USD hit a high of 1.3333 in the Asian session, and consolidated at 1.3322. The pair has edged lower in Monday trading, and is testing the 1.33 level. There is weak support at 1.3280, and this line could face pressure if the euro continues to lose ground. The line of 1.3170 is stronger. On the upside, 1.3350 is providing resistance. This line has strengthened as the pair trades close to the 1.33 line.

Current range: 1.3280 to 1.3350.

Further levels in both directions:

• Below: 1.3280, 1.3240, 1.3170, 1.3130, 1.3080, 1.3030, 1.30 and 1.2960, 1.2835 and 1.2805.

• Above: 1.3350, 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 long positions. This could be a signal that we will see a reversal in the current downward trend of the pair, as the euro tests the 1.33 line. Trader sentiment continues to be strongly biased in favor of short positions.

After a very busy week, the euro has started the week with some modest losses. There is only one economic release today, so the markets will have little to go by as far as fundamentals. The markets will be paying close attention to today’s Eurogroup meeting in Brussels for any new developments. We could see EUR/USD stay close to the 1.33 line.

EUR/USD Fundamentals

• 7:00 German Producer Price Index. Estimate 0.0%. Actual -0.3%.
• All Day: Eurogroup Meetings.
• 18:00 Deutsche Bundesbank President Jens Weidmann Speaks.

*Key releases are highlighted in bold

*All release times are GMT

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