EUR/USD – Steady as German Manufacturing Data Shines

In contrast to last week’s excitement, it’s been an unusually quiet week, with no major releases from the Eurozone or the US scheduled until Thursday. EUR/USD has responded in predictable fashion, with little movement. The pair continues to test the 1.31 line in Wednesday’s European session. In today’s releases, German Industrial Production jumped 1.2%, blowing past the estimate of -0.1%. Later today, the US will release Crude Oil Inventories and auction off 10-year bonds.

After the ECB took action and reduced interest rates, the markets had a chance to hear ECB head Mario Draghi, who spoke in Rome on Monday. Draghi said that last week’s cut was taken due to the continuing slowdown in the Eurozone, and urged Eurozone countries to take the necessary steps to get their fiscal houses in order. Draghi repeated that the ECB was open to further rate cuts, as well as lowering its deposit rates below zero. When he mentioned the latter point last week, the euro took a dive, but this time, the markets did not react. However, not all policymakers favor further reductions. Yves Mersch, an ECB board member, stated that interest rate cuts have limits to their effectiveness.

New Italian Prime Minister Enrico Letta is on a European tour, and has called for an end to strict austerity. Letta wants to see the Eurozone leaders concentrate on renewing growth, rather than simply implementing more austerity measures. He received an enthusiastic welcome in Paris from French President Francois Hollande, whose popularity has plummeted due to his government’s austerity measures. Letta’s remarks were not received as warmly when he visited Berlin, as Germany is tired of bailing out other zone members and is a strong proponent of fiscal consolidation – namely, more austerity. We can expect some lively exchanges at future Eurozone summits regarding how to breathe life into the Eurozone’s ailing economy.

Remember all the talk about Greece being on the ropes and possibly leaving the Eurozone? Well, according to the IMF, things have improved. The organization released a report this week which praised Greece for its efforts to reduce crippling deficits, commending the country for ”exceptional progress” in the past four years. The IMF also noted approvingly that Greece had increased competitiveness and kept the financial sector stable. At the same time, the report found that the country has failed to tackle tax evasion or cut the inefficient public sector, and these factors had contributed to a deep recession. With an economy that has shrunk by 20% and an unemployment rate at a staggering 27%, Greece is by no means out of the woods, and may still need a helping hand from the IMF or ECB in the near future.

EUR/USD for Wednesday, May 8, 2013

EUR/USD 1.3108 H: 1.3131 L: 1.3073

EUR/USD Technical

EUR/USD continues to show little movement in Wednesday trading, as the proximate support and resistance levels remain in place (S1 and R1 above). On the downside, the pair continues to test the 1.31 level. There is stronger support at 1.3050. On the upside, 1.3170 is providing resistance. This followed by a resistance line at 1.3240.

• Current range: 1.3100 to 1.3170

Further levels in both directions:

• Below: 1.31, 1.3050, 1.3000, 1.2960 and 1.2880
• Above: 1.3170, 1.3240, 1.3306, 1.3398 and 1.3479

OANDA’s Open Positions Ratio

The EUR/USD ratio is unchanged in Wednesday trading. This is consistent with what we are seeing the pair, which continues to show little activity. Meanwhile, short positions continue to enjoy a majority of the open positions, indicative of a trader bias towards the pair moving downwards.

In sharp contrast to the volatility we saw last week, the pair continues to trade quietly near the 1.31 line. It is another quiet day in terms of fundamental releases, so we could see the narrow range trading continue.

EUR/USD Fundamentals

• 10:00 German Industrial Production. Estimate. -0.1%. Actual 1.2%.
• 12:30 FOMC Member Jeremy Stein Speaks.
• 14:30 US Crude Oil Inventories. Estimate 2.1M.
• 17:00 US 10-year Bond Auction.
• 18:00 US Treasury Secretary Jack Lew Speaks.

*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.