EUR/USD – Euro Steady Ahead of German Hearing on OMT

EUR/USD has picked up where it left off on Monday, posting modest gains against the dollar on Tuesday. The pair is trading in the high-1.32 range in the European session. Taking a look at today’s economic releases, it’s another quiet day. All eyes are on the German city of Karlsruhe, where a German court will is to rule on the constitutionality of the ECB’s bond-buying program. There are no other Eurozone releases on Tuesday. In the US, there are two minor releases – NFIB Small Business Index and Wholesale Inventories.

The ECB will be in court on Tuesday, as Germany’s Federal Constitutional Court reviews the constitutionality of the ECB’s OMT (Outright Monetary Transactions). Under the OMT rescue program, the ECB purchases bonds from members whose economies are in trouble. Last week, ECB head Mario Draghi stated that OMT had helped bring stability to the European and global markets and was a key monetary policy measure. Draghi’s optimistic view lies in sharp contrast to that of Bundesbank President Jens Weidmann, who voted against OMT In previous cases involving the legality of ECB rescue mechanisms, the German court has given its approval, but has sometimes added provisos. So we can expect the court to rule that OMT is legal, although it could be a qualified ‘yes’. The court decision should be treated as a market-mover, as it can affect the movement of EUR/USD.

Recent ECB policy meetings have resulted in strong volatility from the euro, and last week’s meeting was no exception. EUR/USD sparkled after Thursday’s policy meeting, gaining about 150 points, as the euro tested the 1.33 level. As expected, the ECB maintained its benchmark rate at 0.50% and deposit rates at 0%. There has been talk of lowering deposit rates into negative territory, but so far the ECB has not taken any action in this direction. In his remarks, ECB President Mario Draghi downgraded the forecast for Eurozone growth in 2013 from 0.6% to 0.5%. However, for 2014, Draghi hiked the forecast from 1.0% to 1.1%. The markets seemed pleased with Draghi’s comments, and the euro surged against the dollar, which was broadly weaker against the major currencies.

Taking a look at the US, there was some good news from the S&P ratings agency on Monday, as the well-respected firm revised the US sovereign credit rating from negative to stable. This is an important vote of confidence in the US economy, and means that there is less than a 1 in 3 chance of another downgrade in the next two years. S&P noted that a key factor in its revision was the agreement reached in the US Congress which averted the fiscal cliff crisis, which would have led to $600 billion in automatic tax increases and spending cuts and could have pushed the fragile US economy into recession. In 2011, S&P cut the US credit rating from AAA to AA, and the threat of another downgrade has been a concern of the markets. This news will likely improve market sentiment and could give a boost to the US dollar.

US employment numbers were a mix last week. ADP Non-Farm Payrolls slipped badly, as the key employment indicator missed the estimate for the third consecutive month. The indicator posted a reading of 135 thousand, well off the forecast of 171 thousand. Unemployment Claims managed to meet the estimate, but the market reaction was lukewarm. Non-Farm Payrolls was strong, climbing from 165 thousand to 175 thousand. This was above the market forecast of 167 thousand. The Unemployment Rate rose edged higher to 7.6%, above the forecast of 7.5%. With speculation growing that the Fed could scale back QE in the next few months, employment figures have taken on added significance. However, the Fed may decide to hold a steady course if the employment picture remains cloudy. 

 

EUR/USD for Tuesday, June 11, 2013

Forex Rate Graph 21/1/13
EUR/USD June 11 at 10:00 GMT

EUR/USD 1.3280 H: 1.3299 L: 1.3248

 

EUR/USD Technical

S3 S2 S1 R1 R2 R3
1.3100 1.3162 1.3271 1.3353 1.3477 1.3586

 

EUR/USD continues to post gains in the Tuesday session. On the downside, 1.3271 is providing support. This is a weak line, and could fall if the dollar shows any strength. There is a stronger support level at 1.3162. On the upside, the pair faces resistance at 1.3351. This is followed by a resistance line at 1.3477.

  • Current range: 1.3271 to 1.3353

 

Further levels in both directions:

  • Below: 1.3271, 1.3162, 1.3100, 1.3050 and 1.3000
  • Above: 1.3353, 1.3477. 1.3586 and 1.3690

 

OANDA’s Open Positions Ratio

EUR/USD ratio has shifted from Monday’s direction, and is now pointing to movement towards short positions. We are not seeing this reflected in the pair, as the euro has made slight gains against the dollar. If this movement continues, it could be an early indication that we will see the pair reverse direction and move downwards.

The euro continues to press higher, and is close to the 1.33 line. Today’s only major release is the German court ruling on OMT, and unless the court surprises the markets and rules OMT to be illegal, we could see a quiet day from EUR/USD.

 

EUR/USD Fundamentals

  • Day 1 – German Constitutional Court Ruling.
  • 11:30 US NFIB Small Business Index. Estimate 93.4 points.
  • 14:00 US Wholesale Inventories. Estimate 0.1%.

 

*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.