EUR/USD – Dollar Posts Modest Gains following Ahead of Key US Releases

EUR/USD has changed directions following spectacular gains on Wednesday. The euro gained around 350 points following the release of the FOMC’s most recent policy meeting, which showed that Federal policymakers were split over tapering QE. The dollar continues to post modest gains in Friday trading, as EUR/USD trades in the mid-1.3000 range in the European session. In economic news, US Unemployment Claims looked weak, coming in well above expectations. On Friday, Eurozone Industrial Production disappointed, dropping to a four-month low. In the US, the week wraps up with two key releases on Friday – PPI and UoM Consumer Sentiment.

The euro has been struggling badly since mid-June, and looked lost on Tuesday as it dropped into 1.27 territory. There was an expectation that we would see some volatility after the release of the Fed minutes, but few would have predicted that the euro would rocket upwards and flirt with the 1.32 line. The minutes indicated that Federal Reserve policymakers remain deeply divided over when to scale down the current round of QE, whereby the Fed purchases $85 billion in assets each month. About half of the Fed policymakers favor scaling down QE before the end of 2013, while others feel that the employment market is still too fragile for the Federal Reserve to take any action. Meanwhile the dollar continued to lose ground as Federal Reserve chair Bernanke gave a speech in which he said that the Fed would maintain a loose monetary policy for the foreseeable future, due to low levels of inflation and a high US unemployment rate. The dollar was broadly weaker against the major currencies as a result, but has recovered partially.

US employment numbers have looked good recently, raising speculation about the Federal Reserve tapering QE sometime in 2013. However, Thursday’s release of the FOMC minutes pointed to a split amongst Fed policymakers whether to maintain QE or scale down the bond-purchasing program. Fed chair Bernanke sounded cooler about QE tapering than he did in June, and stated that unemployment would have to drop to 6.5% before the Fed made a move. The markets reacted quickly to these developments, and the US dollar was broadly weaker as a result. Meanwhile, US Unemployment Claims disappointed on Thursday, coming in at 360 thousand, well above the estimate of 342 thousand.

In the Eurozone, the political crisis which gripped Portugal last week appears to be over, but its neighbor has its own political crisis brewing. The ruling party in Spain appears to have been involved in a corruption scandal, and Prime Minister Mariano Rajoy has been accused of being involved. There is a report in the Spanish media that Rajoy received illegal payments while serving as a minister in the Aznar government back in the late ’90s. The scandal threatens to topple the government and bring more instability to Spain, which has severe economic problems as it is.

EUR/USD for Friday, July 12, 2013

EUR/USD 1.3050 H: 131.00 L: 1.3036

EUR/USD Technical

EUR/USD has posted some losses since Wednesday’s huge gains. The pair is testing support at 1.3050. This line could fall if the dollar continues to improve. This is followed by support at the round number of 1.3100. On the upside, the pair continues to face resistance at 1.3100. This is not a strong line, and could face more action, given the volatility we are seeing from the pair. This is followed by resistance at 1.3162.

• Current range: 1.3050 to 1.3100

Further levels in both directions:

• Below: 1.3050, 1.3000, 1.2943, 1.2844, 1.2751 and 1.2696
• Above: 1.3100, 1.3162, 1.3275 and 1.34.

OANDA’s Open Positions Ratio

The EUR/USD ratio continues to point to movement towards short positions in Friday trading. This is consistent with what we are seeing from the pair, as the dollar continues to post modest gains against the euro.

The dollar has moved higher despite a disappointing US Unemployment Claims release on Thursday. Will the US currency continue to recover from Wednesday’s sharp losses? With the US releasing key inflation and consumer confidence numbers on Friday, we could see some volatility from EUR/USD.

EUR/USD Fundamentals

• 9:00 Eurozone Industrial Production. Estimate -0.2%. Actual -0.3%.
• 12:30 US PPI. Estimate 0.5%.
• 12:30 US Core PPI. Estimate 0.2%.
• 13:55 US Preliminary UoM Consumer Sentiment. Estimate 85.3 points.
• 13:55 US Preliminary UoM Inflation Expectations. Estimate 3.1%.
• 15:00 US FOMC Member James Bullard 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.