EUR/USD- Sharp Losses as GDP Data Disappoints

EUR/USD dropped sharply after disappointing GDP data from the Eurozone. Germany, France, Italy and the Eurozone all posted larger than expected declines in their economies, underscoring continued weakness in the bloc’s major economies. The Eurozone GDP fared no better, and also posted a sharp decline. In the US, today’s highlight is Unemployment Claims.

The euro has taken a tumble, losing more than a cent in Thursday’s European session. The currency took a hit after GDP releases out of the major Eurozone economies were very weak. Germany, France and Italy all recorded declines, and all three readings were below the market estimate. The news was no better from the Eurozone economy, which also posted a sharp drop in its GDP. The markets are particularly concerned about economic weakness in Germany, which, as the largest economy in the Eurozone, is the key to the Eurozone getting back on its feet. Recent German releases have largely been positive, and the Q3 GDP reading for 2012 recorded a modest gain. However, the German economy has taken a sharp turn southward, with a decline of 0.6%. Senior European officials, including ECB chief Mario Draghi have said that the bloc will not see improvement until late in 2013, but will the markets show the same patience and optimism? Apparently not, if today’s sharp losses are any indication.If Eurozone releases continue to disappoint, we can expect the euro to lose even more ground.

Spain hosted Mario Draghi for a brief visit, as the ECB head addressed the Spanish Parliament in Madrid. Draghi had warm words for his hosts, declaring that “Spain is on the right track”. He was upbeat about the Spanish banking sector, stating that the country’s banks have recovered and are now able to provide credit. Draghi dismissed the idea of establishing an exchange rate policy to keep the euro from rising too rapidly, saying that it was “inappropriate” for the ECB to aim for a particular target. He did, however, reiterate that the ECB is closely monitoring the recent fluctuations in the currency markets. French President Francois Hollande recently called for the ECB to intervene in exchange rates, as France is feeling the pinch to its exports from the high-flying euro. However, German officials quickly poured cold water on the idea, and Draghi’s comments appears to support the German position.

The value of the euro is not just a concern in Europe. The G20 meets in Moscow later this week, and an important topic on the agenda will be the issue of exchange rates. There is mounting concern about currency wars, as some countries, notably Japan, are increasingly relying on monetary policy to kick-start their flagging economies. The G-7, clearly concerned about the high-flying euro and the sinking Japanese yen, reiterated its commitment to allowing the markets to determine exchange rates. The Institute of International Finance, which is comprised of leading banks and financial institutions, also weighed in on the matter. It urged the G-20 to take steps to avoid the “possible discord on exchange rates”. However, we’re unlikely to see any fireworks at the G-20 over this matter. Given the need to reach a consensus, analysts expect any statement on currencies from the G-20 to be mild in nature.

 

EUR/USD for Thursday, February 14, 2013

Forex Rate Graph Thursday, February 14, 2013

EUR/USD February 14 at 10:50 GMT

1.3335 H: 1.3456 L: 1.3319

 

EUR/USD Technical

S3 S2 S1 R1 R2 R3
1.3170 1.3240 1.3280 1.3350 1.34 1.3480

 

EUR/USD has dropped sharply in Thursday’s European session. There is strong resistance at 1.3350. This is a weak line, and could see further activity if there is a reversal to the current downward trend. The round number of 1.34, which has seen a lot of action this week, is the next line of resistance. On the downside, there is support at 1.3280. The next supprt level is at 1.3240.

Current range: 1.3280 to 1.3350.

Further levels in both directions:

  • Below: 1.3280, 1.3240 and 1.3170, 1.3096, 1.2998
  • Above: 1.3350, 1.34, 1.3480, 1.3573, 1.3627, 1.3690, 1.3745

 

OANDA’s Open Position Ratios

The EUR/USD ratio has reversed Wednesday’s movement, and is currently pointing to a very sharp move away from long positions. This is reflected in the current downward movement by the pair, with the euro shedding over a cent so far on Thursday. The downward momentum appears to be strong, so we can expect the current movement in the ratio to continue.

It’s been a busy week for EUR/USD, and we are currently seeing a strong rally by the dollar, which has more than made up for losses it sustained this week versus the euro. The markets continue to digest today’s weak GDP data out of the Eurozone, and US Unemployment Claims will be later today. Traders should hold tight onto their hats, as it could continue to be a turbulent day.

 

EUR/USD Fundamentals

  • 6:30 French Preliminary GDP. Estimate -0.2.%. Actual -0.3%.
  • 7:00 German Preliminary GDP. Estimate -0.5%. Actual -0.6%.
  • 7:45 French Preliminary Non-Farm Payrolls. Estimate -0.2.%. Actual -0.2%.
  • 9:00 Eurozone ECB Monthly Bulletin.
  • 9:00 Italian Preliminary GDP. Estimate -0.5.%. Actual -0.9%.
  • 10:00 Eurozone Flash GDP. Estimate -0.4%. Actual -0.6%.
  • 13:30 US Unemployment Claims. Estimate 361K.
  • 15:30 US FOMC Member Daniel Tarullo Speaks.
  • 15:30 US Natural Gas Storage. Estimate -166B.
  • 17:50 US FOMC Member James Bullard Speaks.
  • 18:00 US 30-year Bond Auction.

 

*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.