EUR/USD – Drops Below 1.30 After Weak German Data

The EUR/USD has not ventured far from the 1.30 level, but this line has seen some activity on Tuesday, with the pair crossing above 1.30 in the Asian session, only to retract in European trading. The pair has moved lower after the release of disappointing German data, particularly ZEW Economic Sentiment, which was way below the estimate. Today’s Eurozone numbers looked better, as Industrial Production climbed up and ZEW Economic Sentiment was within expectations. There are only two releases out of the US on Tuesday.

German releases have improved in recent readings, but any expectations that we would see the positive trend continue on Tuesday were dashed. Inflation numbers looked weak, as Final CPI declined by 0.5%, matching the forecast. WPI also lost ground, dropping by 0.2%, but this bettered the forecast of -0.3%. The disappointment of the day was German ZEW Economic Sentiment, one of the most important German economic indicators. It posted a reading of 36.4 points, well below the estimate of 39.5 points. Today’s Eurozone releases were stronger, as Industrial Production climbed to 1.0%, beating the estimate of 0.6%. Eurozone ZEW Economic Sentiment came in at 27.6 points, edging out the forecast of 27.3 points. The euro lost ground after the weak German numbers, and was trading in the 1.2980 range in the European session.

There has been a lot of volatility from EUR/USD recently, and one of the reasons has been statements from the ECB regarding negative deposit rates. Essentially, this means that depositors would be charged a fee for cash deposits held in European banks. ECB head Mario Draghi broached the idea earlier this month, and the euro dropped almost immediately. The reason? Negative deposit rates would lead to the flow of funds out of the Eurozone, as deposit holders seek better returns on their money. Earlier in the week, ECB member Ignazio Visco said that the ECB was open to the idea of negative deposits. Proponents of the idea argue that it would increase lending to businesses and help boost economic activity in the sluggish Eurozone. The ECB would be the first major central bank to adopt negative deposit rates, and if the ECB does take steps to adopt this measure, we can expect the euro to react.

After a bad streak in April, we are seeing better numbers out of the US, notably employment figures. This has raised speculation that the Fed might adjust or even terminate its QE program, in which it buys $85 billion in assets every month. Terminating the QE program is dollar positive, and the US dollar was broadly stronger against all the major currencies late last week. The markets will be looking for any clues as to the Fed ending QE, which would likely push the dollar higher. So far, the Federal Reserve has not make any comments that could be construed as indicating any change from the present course.

EUR/USD for Tuesday, May 14, 2013

EUR/USD 1.2974 H: 1.3029 L: 1.2969

EUR/USD Technical

EUR/USD continues to trade close to the 1.30 line, as the proximate resistance and support lines remain in place (R1 and S1)., The pair continues to receive weak support at 1.2960. This line could face more pressure if the euro loses more ground. There is a stronger support level at 1.2880. On the upside, the pair faces resistance at the round number of 1.3000. This is followed by resistance at 1.3050.

• Current range: 1.2960 to 1.3000

Further levels in both directions:

• Below: 1.2960, 1.2880, 1.2790 and 1.2689
• Above: 1.3000, 1.3050, 1.31, 1.3170 and 1.3240

OANDA’s Open Positions Ratio

EUR/USD ratio is showing little movement in the Tuesday session. This is reflected in the pair, as the euro has not showed much net movement. The ratio is close to an even split between short and long open positions, indicating a split among traders with regard as what to expect from the pair.

EUR/USD is under pressure after weak German numbers, and has dropped below the 1.30 level. There are no major releases out of the US on Tuesday, so we could see the pair trade quietly in the high 1.29 range during the day.

EUR/USD Fundamentals

• 6:00 German Final CPI. Estimate -0.5%. Actual -0.5%.
• 6:00 German WPI. Estimate -0.3%. Actual -0.2%.
• 9:00 German ZEW Economic Sentiment. Estimate 39.5 points. Actual 36.4 points.
• 9:00 Eurozone Industrial Production. Estimate 0.6%. Actual 1.0%.
• 9:00 Eurozone ZEW Economic Sentiment. Estimate 27.3 points. Actual 27.6 points.
• All Day: ECOFIN Meetings.
• 11:30 US NFIB Small Business Index. Estimate 89.9 points.
• 12:30 US Import Prices. Estimate -0.5%.

*Key releases are highlighted in bold

*All release times are GMT

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