EUR/USD – Steady as Rate Cut Speculation Grows

EUR/USD is steady in Tuesday trading, as the pair continues to trade in the high-1.30 range in the European session. There was grim news to greet the markets as the Eurozone Unemployment Rate hit another record, fuelling further speculation that the ECB may take action and lower interest rates later this week. German numbers were mixed, as Unemployment Change came in higher than expected, while Consumer Climate beat the estimate. In the US, today’s key event is CB Consumer Confidence. The markets are expecting a turnaround after last month’s disappointing release.

Will we see a rate cut from the ECB later this week? The Eurozone continues to stagnate with poor releases, highlighted by another record high for Eurozone Unemployment Rate, which edged to 12.1%, up from 12.0%. Speculation that the ECB will take action and lower rates is growing. Goldman Sachs released a statement on Thursday, stating that it expects a 0.25% cut when the ECB meets this week. The prestigious firm also downgraded Eurozone growth for 2013, from -0.5% to -0.7%. All eyes will be on the ECB, which will set this month’s interest rates on Thursday.

After months of paralysis, Italy has finally formed a government. The deadlock, which had paralyzed the Eurozone’s third largest economy and had kept the markets on edge, was finally broken as Enrico Letta was nominated as prime minister last week. Letta’s Democratic Party does not have a parliamentary majority, so the coalition he has cobbled together may not last for long. Letta is considered a moderate and is liked within the Eurozone. The new government will be faced with an economy mired in recession and a sour electorate that is fed up with austerity measures. The markets were pleased by the news, and Italian 10-year bonds fell below 4%, indicating renewed investor confidence in the Italian economy.

There was more disappointing news out of the US on Friday, as GDP fell below expectations. With a long string of weak releases for the past month, the GDP reading appeared to underscore the recent disappointing data. The key indicator improved sharply, climbing from -0.1% to 2.5%. However, the markets had anticipated a gain of 3.1%. The weaker than expected reading from one of the most important economic indicators should serve as a wakeup call that the US economy is hitting turbulence, which could affect the US dollar.

 

EUR/USD for Tuesday, April 30, 2013

Forex Rate Graph 21/1/13
EUR/USD April 30 at 11:15 GMT

1.3072 H: 1.3120 L: 1.3056

 

EUR/USD Technical

S3 S2 S1 R1 R2 R3
1.2960 1.3000 1.3050 1.3100 1.3170 1.3240

 

EUR/USD is steady in cautious trading on Tuesday. The pair is receiving support at 1.3050. This line is a weak one, and could face further pressure during the day. There is a stronger support level at the round number of 1.3000. On the upside, the pair faces resistance at 1.3100. This is also a weak line, and could be tested if the euro gains ground. There is stronger resistance at 1.3170.

  • Current range: 1.3050 to 1.3100

 

Further levels in both directions:

  • Below: 1.3050, 1.3000, 1.2960, 1.2880 and 1.2820
  • Above: 1.31, 1.3170 and 1.3240

 

OANDA’s Open Position Ratios

The EUR/USD ratio continues to point to movement towards short positions in Tuesday trading. This is not reflected in the pair’s current movement, as the pair is trading quietly. The activity in the ratio could be a sign that we are in for a correction and the dollar will rebound. Short positions command a strong majority, indicative of a strong trader bias toward the pair pushing downwards.

The euro is in a holding pattern, as the markets anxiously wait to see if the ECB will lower interest rates, or once again talk the talk, but refrain from any drastic action. We could see the lack of activity continue during the day.

 

EUR/USD Fundamentals

  • 7:00: German Retail Sales. Exp. -0.2%. Actual -0.3%.
  • 7:00 GfK German Consumer Climate. Estimate 5.9 points. Actual 6.2 points.
  • 7:45 French Consumer Spending. Estimate 0.2%. Actual 1.3%.
  • 8:00 Spanish Flash GDP. Estimate -0.5%. Actual -0.5%.
  • 8:55 German Unemployment Change. Estimate 2K. Actual 4K.
  • 9:00 Italian Monthly Unemployment Rate. Estimate 11.7%. Actual 11.5%.
  • 10:00 Eurozone CPI Flash Estimate. Estimate 1.6%. Actual 1.2%.
  • 10:00 Eurozone Unemployment Rate. Estimate 12.0%. Actual 12.1%.
  • 10:00 Italian Preliminary CPI. Estimate 0.3%. Actual 0.1%.
  • 12:30 US Employment Cost Index. Estimate 0.5%.
  • 13:00 US S&P/CS Composite-20 HPI. Estimate 9.1%.
  • 13:45 US Chicago PMI. Estimate 52.5 points.
  • 14:00 US CB Consumer Confidence. Estimate 61.4 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.