EUR/USD – Dollar Firm Despite Weak US Housing Data

EUR/USD has continued on Monday where it left off last week, as the pair trades quietly in the mid-1.33 range in Monday’s European trading. On Friday, US New Home Sales looked awful, plunging to a seven-month low. Monday has a very light schedule with only two releases, as the US posts Core Durable Goods Orders and Durable Goods Orders. There are no Eurozone releases on Monday.

When will the US Federal Reserve scale down QE? That is the million dollar question which continues to preoccupy the markets. The release last week of the FOMC didn’t provide any hints, but appeared to confirm that QE tapering is a question of “when” rather than “if”. The minutes showed that Fed policymakers favor scaling back the bond-buying program, but are divided on the timing of such a move. The policymakers stated that recent US economic data was “mixed”, and all members agreed that it was still too early to scale back the current bond-buying levels of $85 billion each month. QE is a dollar-positive event, so traders should prepare for the US currency to post gains against the major currencies when the Fed decides to taper.

The annual Jackson Hole Summit concluded on the weekend, but anyone expecting some clarity on QE tapering was in for a disappointment. Federal Reserve head Bernard Bernanke was a no-show, and other policymakers didn’t hesitate to share their views. Dennis Lockhart, head of the Atlanta Fed, said that tapering could start in September, but only if US economic numbers justified such a move. There was a more hawkish statement from James Bullard, head of the St. Louis Fed. Bullard said that there was no need for the Fed to rush into QE tapering. The uncertainty over QE tapering has boosted the US dollar, raised the yields on US treasury bonds and had worldwide repercussions, such as causing jittery investors to pull billions of dollars out of emerging markets.

US New Home Sales had beaten the estimate for four consecutive releases, but that impressive streak came to a crashing end on Friday, as the key housing indicator slid to its lowest level since January. The indicator came in at 394 thousand, nowhere near the estimate of 487 thousand. Earlier last week, US Unemployment Claims also was well off market expectations. Despite these disappointing releases, the US dollar remains steady against the euro, as the markets seemed more focused on QE than the latest US economic release.

Greece has already received two bailouts from the troika, amounting to some 240 billion euros. Despite this massive infusion of funds, the country’s economy is still in difficult straits, and there is now talk of a third bailout. On Sunday, Greek finance minister Yannis Stournaras said that Greece was looking for another 10 billion euros in aid, but would not adopt any austerity measures in return. Germany is unlikely be in a giving mood, with just weeks to go before national elections in Germany. Additional aid for Greece could damage Chancellor Angela Merkel’s credibility, as she recently said she didn’t see a need for more aid to Greece.

EUR/USD for Monday, August 26, 2013

EUR/USD 1.3372 H: 1.3391 L: 1.3364

EUR/USD Technical

EUR/USD is showing little movement on Monday, as the proximate support and resistance lines remain in place (S1 and R1 above). The pair traded was quiet in the Asian session and consolidated at 1.3381. EUR/USD has inched lower in European trading. The pair continues to face resistance at 1.3410. This line could face pressure if the euro can break out of the current narrow range. The next line of resistance is at 1.3476.

On the downside, the pair continues to receive support at the round number of 1.3300. There is stronger support at 1.3162. This line has remained firm since mid-July.

• Current range: 1.3300 to 1.3410

Further levels in both directions:

• Below: 1.3300, 1.3162, 1.3100, 1.3050 and 1.3000
• Above: 1.3410, 1.3476, 1.3585 and 1.3649

OANDA’s Open Positions Ratio

EUR/USD ratio is almost unchanged in Monday trading, continuing the trend we saw on Friday. This is reflected in the pair’s current movement, as the pair has shown very little activity today. The ratio continues to show an overwhelming majority of short positions, indicating strong trader bias towards the US dollar making inroads at the expense of the euro.

EUR/USD has settled down and appears comfortable in the mid-1.33 range. We could see some movement from the pair later in the day, as the US releases key manufacturing data later in the day.

EUR/USD Fundamentals

• 12:30 US Core Durable Goods Orders. Exp. 0.6%.
• 12:30 US Durable Goods Orders. Exp. -3.0%.

*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.