EUR/USD – Euro Struggling as Draghi Repeats Dovish Stance

EUR/USD is struggling to remain above the key 1.30 level in Thursday trading. The pair has lost around two cents so far this week. The euro got no help from remarks by ECB President Mario Draghi on Wednesday that that the ECB’s monetary policy would remain loose. In the US, Final GDP fell well below expectations. On Thursday, the markets were treated to some positive news as German Unemployment Change dropped sharply. Italian 10-year bonds continue to rise, and posted an average yield of 4.55% in the Thursday auction. In the US, there are two key releases later today – Unemployment Claims and Pending Home Sales.

The markets got a look at US GDP numbers on Wednesday, and the results were less than impressive. Final GDP climbed nicely, from 0.4% to 1.8%, but this was well short of the estimate of 2.4%. The Final GDP Price Index rose 1.2%, edging past the estimate of 1.1%. The weak GDP release put a damper on a bright market mood thanks to excellent US numbers on Tuesday. Core Durable Goods, CB Consumer Confidence and New Home Sales, all key releases, beat their estimates. Manufacturing data, often a sore spot, also looked good as the Richmond Manufacturing Index had its best performance since last November. The strong numbers are particularly encouraging as they come from a wide range of economic sectors.

Is the US Federal Reserve backtracking on QE? The US dollar surged last week after Federal Reserve Chair Bernard Bernanke said that the Fed was planning to scale down QE. However, US (and global) stock markets fell sharply on the news, and the Fed finds itself trying to contain the damage and calm the nervous markets. Dallas Fed President Richard Fisher declared that “tapering” should not be confused with “tightening” and said that the Fed was not exiting from its accommodative policy action just yet. Minneapolis Fed President Naraya Kocherlakota reiterated that the Fed was continuing with an expansionary monetary policy event if QE was terminated, and said that it was a misperception to assume that the Federal Reserve had turned more hawkish. One can be excused for dismissing these statements as little more than linguistic acrobatics, and it is questionable if the markets will be reassured by these statements from the Fed, which are clearly aimed at damage control and reassuring nervous investors.

Germany has long been considered the locomotive of Europe, but the largest economy in Europe is having trouble, although it is in much better shape than the other major economies in the Eurozone. The week got off to a slow start, as German Ifo Business Climate, a key indicator, came in slightly below the estimate. However, there was better news as German Consumer Climate hit a six-year high. On Thursday, German Unemployment Claims posted a sharp drop of -12 thousand, well below the estimate of 7 thousand. These solid German releases will have to continue if the Eurozone is to get back on the road to recovery.

 

EUR/USD for Thursday, June 27, 2013

 

Forex Rate Graph 21/1/13
EUR/USD June 27 at 10:15 GMT

EUR/USD 1.3019 H: 1.3041 L: 1.3012

 

EUR/USD Technical

S3 S2 S1 R1 R2 R3
1.2844 1.2943 1.3000 1.3050 1.3100 1.3161

 

EUR/USD continues to trade in the low-1.30 range. The pair is facing resistance at 1.3050. This is not a strong line, and could face more pressure from the pair. Next, there is resistance at the round number of 1.3100. On the downside, 1.3000 continues to provide support, but this line could be tested if the pair continues to move downwards. This is followed by a stronger support level at 1.2943, which has remained intact since late May.

  • Current range: 1.3000 to 1.3050

 

Further levels in both directions:

  • Below: 1.3000, 1.2943, 1.2844 and 1.2696
  • Above: 1.3050, 1.3100, 1.3162, 1.3271, 1.3353 and 1.3477

 

OANDA’s Open Positions Ratio

The EUR/USD ratio is almost unchanged in Thursday trading. This is consistent with what we are seeing from the pair, as EUR/USD has taken a pause from its strong downward trend. A majority of positions in the ratio continue to be short, indicating a strong bias towards the dollar posting further gains against the euro.

The euro continues to struggle to remain above the 1.30 level. We could see some volatility during the day as the US releases key employment and housing data later on.

 

EUR/USD Fundamentals

  • 6:00 German Import Prices. Estimate -0.1%. Actual -0.4%.
  • 7:55 German Unemployment Change. Estimate 7K. Actual -12K.
  • 8:00 Eurozone M3 Money Supply. Estimate 2.9%. Actual 2.9%.
  • 8:00 Eurozone Private Loans. Estimate -0.8%. Actual -1.1%.
  • 8:10 Eurozone Retail PMI. Actual 49.1 points.
  • 9:14 Italian 10-year Bond Auction. Actual 4.55%.
  • Day 1 – EU Economic Summit.
  • 12:30 US Unemployment Claims. Estimate 347K.
  • 12:30 US Core PCE Price Index. Estimate 0.1%.
  • 12:30 US Personal Spending. Estimate 0.3%.
  • 12:30 US Personal Income. Estimate 0.2%.
  • 14:00 US Pending Home Sales. Estimate 1.1%.
  • 14:00 US FOMC Member William Dudley Speaks.
  • 14:30 US FOMC Member Jerome Powell Speaks.
  • 14:30 US Natural Gas Storage. Estimate 89B.

 

*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.