EUR/USD – Dollar Firm as Shutdown Continues

EUR/USD is steady as we begin the new trading week. In Monday’s European session, the pair is trading in the high-1.35 range. There is no progress to report on the US shutdown, as the budget deadlock continues. In economic news, it’s a slow start to the week, with just three releases, all of them minor. In the Eurozone, Sentix Investor Confidence dropped in September and was well below the estimate. Eurozone GDP rebounded, posting its first gain in 2013. In the US, today’s sole release is Consumer Credit.

The US government shutdown is almost a week old, and there is no progress to report out of Washington. Democrats and Republicans continue to play the blame game as the government remains paralyzed without funds to operate. Republicans had demanded that the Democrats delay implementation of the 2010 health care act, known as Obamacare, before agreeing to pass a budget. The Democrats have refused, saying the budget must first be passed before any discussions can be held. There are increasing concerns that a prolonged shutdown will hurt the US economy. If the shutdown does continue, we could see some instability in the markets this week and the US dollar, which is already under strong pressure, could lose ground.

The media and markets continue to focus on the shutdown, which has paralyzed the US government for close to a week. However, a potentially devastating crisis is not far away – the debt ceiling. The US has a debt worth $16.7 trillion, and will run out of funds to service the debt by October 17, unless Congress authorizes raising the debt ceiling. Otherwise, the US could potentially default on its obligations, which could cause chaos in the domestic and international markets. Over the weekend, Republican House Speaker John Boehner seems to have hardened his position, saying that the Republicans would not raise the debt ceiling without a “serious conversation” about what is driving the debt to such high levels. This statement (threat?) has irked the Democrats and will do little to soothe jittery markets.

There was a lot of expectation that the Federal Reserve would taper QE in September, and the markets were caught by surprise when the Fed balked and maintained the levels of the bond-buying program at $85 billion/mth. However, things have changed dramatically in the past few weeks, with the budget deadlock in Washington as well as growing fears about a debt ceiling crisis. Even if both of these issues were to be resolved quickly, the distortions and delays in key economic data will make it difficult for the Fed to have an accurate, up-to-date picture of the US economy. This will likely rule out any decision to taper QE before the end of the year.

As widely expected, the ECB maintained its key interest rate at 0.50% last week. There was more interest in the follow-up press conference, which has become more of a market-moving event than the rate announcement. At the press conference, ECB President Draghi downplayed risks to the fragile Eurozone economy, and repeated that interest rates would remain at current or lower levels for an “extended period of time” given the low growth levels and weak inflation in the Eurozone. Friday’s PPI releases underscored the lack of inflation in the Eurozone, as German PPI declined by 0.1%, while Eurozone PPI dropped to a flat 0.0%. Both indexes fell short of the forecast. With the Eurozone experiencing slow growth and low inflation, there’s little room for interest rates to go anywhere but down.

 

EUR/USD for Monday, October 7, 2013

Forex Rate Graph 21/1/13
EUR/USD October 7 at 10:30 GMT

EUR/USD 1.3573 H: 1.3592 L: 1.3561

 

EUR/USD Technical

S3 S2 S1 R1 R2 R3
1.3335 1.3410 1.3500 1.3585 1.3649 1.3786

 

  • The euro is showing little movement in Monday trading. The pair has touched a high of 1.3592 in the European session but has edged lower.
  • EUR/USD is facing resistance at 1.3585. This weak line is facing strong pressure and could fall during the day. This is followed by resistance at 1.3649.
  • The pair is receiving support at the round number of 1.35. This is followed by support at 1.3410.
  • Current range: 1.3500 to 1.3585

 

Further levels in both directions:

  • Below: 1.3500, 1.3410, 1.3335, 1.3162 and 1.3100
  • Above: 1.3585, 1.3649, 1.3786, 1.3893 and 1.4000

 

OANDA’s Open Positions Ratio

EUR/USD ratio is pointing towards long positions in Monday trading. This is reflected in the current movement of the pair, as the euro has posted very slight gains against the dollar. The ratio continues to have a solid majority of short positions, indicative of a strong trader bias towards the US dollar climbing to higher ground.

EUR/USD is steady as it trades in the high-1.35 range. With no major events out of the US or Europe on Monday, it could be a quiet day for the pair.

EUR/USD Fundamentals

  • 8:30 Eurozone Sentix Confidence. Estimate 10.9 points. Actual 6.1 points.
  • 9:00 Eurozone Final GDP. Estimate 0.3%. Actual 0.3%.
  • 19:00 US Consumer Credit. Estimate 12.6B.

 

*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.