EUR/USD – Euro Moves Higher on Strong German Data

EUR/USD is posting modest gains in Tuesday trading. The pair has moved up to the mid-1.30 range in the European session. The euro has received a lift from another positive release out of Germany, as German Trade Balance came in above the forecast. In the US, it is another quiet day with only two minor releases on the schedule. 

Eurozone numbers have been weak recently, so much so that there is continuing talk about the ECB reducing interest rates. However, there has been some significant positive news, as Germany has bounced back with some solid releases. Late last week, German Factory Orders gained 2.3%, after a decline in the previous release. This week, German Industrial Production improved 0.5%, better than the forecast of 0.4%. Earlier on Tuesday, German Trade Balance posted a six month high, with a surplus of 17.1 billion euros. This was well above the estimate of 16.2 billion euros. If the Eurozone is to get back on track, it will need Germany, the largest and most important economy in the Eurozone, to lead the way to recovery. Stronger German numbers will improve market sentiment and help push the euro higher.

Although the Cyprus bailout crisis has not been resolved and Mario Draghi basically acknowledged that that the Eurozone economy is in deep trouble, the euro made substantial gains against the greenback last week. Clearly, it wasn’t domestic developments aiding the continental currency. Rather, the euro was boosted by continuing weak US numbers, notably weak US employment data late last week. However, the euro continues to be weighed by weak numbers throughout the zone, and will find it tough to push higher if Eurozone numbers don’t improve. Last week’s numbers didn’t look good as PMI numbers out of Spain, Italy and the Eurozone indicate continuing weakness in the services and manufacturing industries. The employment situation is nothing short of alarming as the Unemployment Rate in the Eurozone edged up to a record high of 12.0%, and rates in Greece and Spain remain around 25%.

The markets are following events in Portugal, where the country’s Constitutional Court struck down parts of an austerity package that the government announced earlier this year. These steps are part of a bailout package that Portugal received in 2011. The court struck down tax hikes worth about EUR5 billion euros. As a result, Portugal finds itself EUR 1.4 billion short in expected revenue. The economic picture is not good, as the economy shrunk 3.2% in 2012, and Portugal is behind in its deficit reduction targets. The legal tangles could aggravate the country’s difficult economic situation and lead to a full-blown crisis, which would be bad news for the Eurozone and the euro.

In the US, talk of a deepening recovery is being replaced by concerns about the direction the economy, as the US continues to post out dismal numbers. With every major release over the past two weeks failing to meet expectations, the markets are justifiably becoming increasingly anxious. The data comes from sectors throughout the economy – housing, manufacturing consumer confidence and employment releases have all missed their estimates. On Friday, Non-Farm Payrolls followed the string of dismal releases, posting its worst showing since July 2012. There were 88 thousand new jobs created, way below the estimate of 198 thousand. Will we see a turnaround in this week’s numbers? If not, we could see some volatility in the currency markets.

EUR/USD for Tuesday, April 9, 2013

1.3036 H: 1.3038 L: 1.2969

EUR/USD Technical

EUR/USD continues to improve, and is trading above the 1.30 line. On the downside, the pair is currently testing 1.3030. The next support level is at the round number of 1.30. On the upside, 1.31 is providing resistance. This is followed by resistance at 1.3170.

Current range: 1.3030 to 1.3100.

Further levels in both directions:

• Below: 1.3030, 1.30, 1.2960, 1.2835 and 1.2805, 1.2745  and 1.2689
• Above: 1.31, 1.3170, 1.3240, 1.3350, 1.34

OANDA’s Open Position Ratios

The EUR/USD ratio is showing movement towards short positions in the Tuesday session .We are not seeing this in the current movement of the pair, as the euro posts modest gains against the US dollar. The activity in the ratio could indicate an expectation that the euro will reverse its current upward movement and lose ground against the US currency.

EUR/USD continues to move upwards this week, and received some help from positive German data. With no major US releases today, we can expect the euro to hold its own against the US dollar, and perhaps make some modest gains.

EUR/USD Fundamentals

• 6:00 German Trade Balance. Exp. 16.2B. Actual 17.1B.
• 6:45 French Government Budget Balance. Actual -27.1B.
• 6:45 French Trade Balance. Exp. -5.3B. Actual -6.0B.
• 11:30 US NIFB Small Business Index. Exp. 92.3 points.
• 14:00 US Wholesale Inventories. Exp. 0.5%.

*Key releases are highlighted in bold

*All release times are GMT

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