EUR/USD – Euro Steady, Tests 1.33 Line

EUR/USD is steady, as the pair tests the 1.33 line in Wednesday’s European session. On Wednesday, the German Constitutional Court will wind up hearings as to the constitutionality of OMT, the ECB bond-buying rescue program. In economic news, Eurozone Industrial Production posted another gain and beat the estimate. There are three releases in the US, including the Federal Budget Balance.

The ECB and the Bundesbank will continue to face off in court on Wednesday, as Germany’s Federal Constitutional Court concludes its review the constitutionality of the ECB’s OMT (Outright Monetary Transactions) program. Under OMT, the ECB can 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 and is asking the court to reject the scheme. 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 the approval could come with strings attached. It should be noted that the ECB is yet to make use of the OMT program, and has not bought a single bond from distressed Eurozone members. A ruling from the court is not expected until September, after German elections.

Remember the Greek debt crisis, which shook up world markets? In an interesting twist, the IMF admitted making mistakes in the Greek bailout program, in which Greece received EUR 240 billion. The IMF said it failed to deal with private debt restructuring properly and had overestimated the ability of Greek governments to push through economic reforms. The IMF dished out some blame as well, pointing fingers at the EU for “notable mistakes”. For its part, Greece said that the IMF report would not affect the bailout agreement, as the country continues to work towards meeting its deficit reduction targets and getting back on its financial feet.

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.

EUR/USD for Wednesday, June 12, 2013

EUR/USD 1.3292 H: 1.3355 L: 1.3247

EUR/USD Technical

EUR/USD has not shown a lot of movement on Wednesday. On the downside, 1.3271 continues to provide weak support. This line is in danger of falling if the dollar shows any strength. There is a stronger support level at 1.3162. On the upside, the pair faces resistance at 1.3353. 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

We are seeing almost no change in the EUR/USD ratio on Wednesday. This is consistent with the lack of activity from the pair. Traders should continue to monitor the ratio, as renewed activity could be a sign that the pair will also exhibit more movement.

The euro is trading quietly, very close to the 1.33 line. With no major releases out of the Eurozone or the US on Wednesday, we could see the pair remain close to the 1.33 level.

EUR/USD Fundamentals

• Day 2 – German Constitutional Court Ruling.
• 5:30 French Final Non-Farm Payrolls. Estimate -0.1%. Actual -0.1%.
• 6:00 German Final CPI. Estimate 0.4%. Actual 0.4%.
• 6:45 French CPI. Estimate 0.3%. Actual 0.1%.
• 9:00 Eurozone Industrial Production. Estimate -0.2%.
• 14:30 US Crude Oil Inventories. Estimate -1.4M.
• 17:00 US 10-year Bond Auction.
• 18:00 US Federal Budget Balance. Estimate -110.2B.

*Key releases are highlighted in bold

*All release times are GMT

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