EUR/USD – Markets Await Fed Policy Meeting

EUR/USD continues to trade in the mid-1.34 range, as the markets keep a close eye on Tuesday’s key Federal Reserve monetary policy meeting. On Monday, US manufacturing numbers were strong, but Pending Homes Sales dropped sharply. German data was mixed, as German Consumer Climate rose slightly, and matched the market estimate. However, German Import Prices declined more than expected. Today’s key release is US CB Consumer Confidence.

The markets will be closely watching as the Federal Reserve holds a two-day policy meeting. The Fed has not been in the headlines lately, but is busy at work, as it increased its purchases of securities in January from $40 billion to $85 billion. This has pushed the Fed’s balance sheet to a record $3 trillion. Despite these measures, the US recovery remains slow, and unemployment is still high at 7.8%. The markets will be paying close attention to the Fed’s take on the economy, and any new steps by the Federal Reserve could affect the direction of EUR/USD.

The euro has been enjoying multi-month highs, after posting strong gains against the US dollar last week. The continental currency has been bolstered by improving German data, as well as optimistic forecasts about the Eurozone economy from ECB President Mario Draghi and others. These officials acknowledge that the Eurozone is going through a tough time, but are confident that the economy will bounce back later in 2013. Many economic indicators point to a deepening recession and continuing fallout from the debt crisis. Unemployment in the zone is just under 12%, with Greece and Spain trying to cope with a staggering 25% unemployment rate. PMIs indicate continuing contraction in many sectors of the economy, and business and consumer confidence is weak. Despite all these problems in the Eurozone, market sentiment is bullish on the high-flying high euro, at least for now.

In economic news, US Core Durable Goods Orders posted a lower gain than in the previous reading. However, the rise of 1.3% easily beat the estimate of 0.8%. Durable Goods Orders looked even better, jumping 4.6%. This crushed the estimate of a 1.8% gain. The markets were pleased with the strong manufacturing data, but the housing numbers that followed was a big disappointment. Last week, New Home Sales dipped to 369 thousand units, way below the estimate of 387 thousand. This shocked the markets, which had anticipated a modest gain of 0.5%. Pending Home Sales fared no better, plunging by 4.3%. This was the indicator’s worst showing since last May. The two key housing indicators points to weakness in the US housing industry, a critical component for economic growth. The bumpy US recovery will continue to limp along if these numbers don’t improve soon.

 

EUR/USD for Tuesday, January 29, 2013

Forex Rate Graph 29/1/13

EUR/USD January 29 at 10:10 GMT

1.3438 H: 1.3360 L: 1.3430

 

EUR/USD Technical

S3 S2 S1 R1 R2 R3
1.3280 1.3350 1.34 1.3480 1.3536 1.3627

 

EUR/USD is trading comfortably in the mid-1.34 range, as the proximate resistance and support levels (R1 and S1 above) remain in place. The round number of 1.34 continues to provide support. The next support level is at 1.3350. On the upside, 1.3480 is providing resistance. This is followed by stronger resistance at 1.3536.

Current range: 1.34 to 1.3480.

Further levels in both directions:

  • Below: 1.34, 1.3350, 1.3280, 1.3240, 1.3170, 1.3130, 1.3080 and 1.3030.
  • Above: 1.3480, 1.3536, 1.3627, 1.3745 and 1.3858.

 

OANDA’s Open Position Ratios

The EUR/USD ratio remains quiet, with the pair trading in the mid-1.34 range. Trader sentiment continues to be strongly biased in favor of short positions. This could be an indication that the pair will exhibit downward movement and the US dollar will make some gains . If EUR/USD resumes last week’s volatility, we can expect to see more activity in the ratio.

The euro has leveled off after its recent strong performance, but shows no signs of giving up any of these gains. The markets will be monitoring Tuesday’s Federal Reserve policy meeting, and any unexpected announcments could impact on EUR/USD.

EUR/USD Fundamentals

  • 7:00 GfK German Consumer Climate. Estimate 5.8 points. Actual 5.8 points.
  • 7:00 German Import Prices. Estimate -0.1%. Actual -0.5%.
  • 14:00 US S&P/CS Composite-20 HPI. Estimate. 5.5%.
  • 15:00 US CB Consumer Confidence. Estimate 64.8 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.