EUR/USD – Little Movement As German Data Mixed

EUR/USD is steady as we begin the new trading week. The pair has shown little movement this week and is trading in the high-1.35 range in Tuesday’s European session. Today’s highlights are releases out of Germany, and we were treated to some mixed data. Trade Balance showed  a strong improvement in September, while Factory Orders posted its second straight decline. There are only two minor releases out of the US, so the markets will be paying more attention to the FOMC minutes, scheduled for release on Wednesday. It’s Day 8 of the shutdown, amid little indication that the crisis will end anytime soon.

There was mixed news out of Germany, the Eurozone’s largest economy, on Tuesday. The nation’s trade surplus widened to 15.6 billion euros in September, compared to 14.5 billion in August. This easily beat the estimate of 15.1 billion. However German Factory Orders was a disappointment, posting a decline of -0.3%, well off the estimate of a 1.2% gain. We’ll get another look at German manufacturing data on Wednesday, with the release of Industrial Production.

The US government shutdown has entered its second week, as the Democrats and Republicans continue to play the blame game. 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 could affect the fragile US recovery. 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.

As political squabbling has held up the US budget, a far more serious crisis is lying just around the corner – 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 markets. A US default has not been priced in the markets, and such a cataclysmic event has never happened. With just 10 days until the ceiling is reached, we could see the markets get restless if the politicians in Washington don’t get their act together quickly.

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. Meanwhile, distortions and delays in key economic data will make it difficult for investors to gauge what the Fed is planning. On Friday, Non-Farm Payrolls and the Unemployment Rate were cancelled, and further data will have to be postponed as the shutdown continues. The FOMC minutes will be released on Wednesday, and this event is often a market-mover.

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 Tuesday, October 8, 2013

EUR/USD October 8 at 10:35 GMT

EUR/USD 1.3574 H: 1.3588 L: 1.3552

EUR/USD Technical

• The euro has edged higher in the European session, trading around the 1.3570 line.
• EUR/USD is testing resistance at 1.3585. This weak line has already been breached today and could continue to face strong pressure from the pair. This is followed by resistance at 1.3649, which has held firm since early February.
• 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 showing little change in Tuesday trading. This is reflected in the current movement of the pair, which has been trading quietly. 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 continues to trade in the high-1.35 range. The pair has had an uneventful week so far, and this could continue on Tuesday, with no major releases out of the US today.

EUR/USD Fundamentals

• 6:00 German Trade Balance. Estimate 15.1B. Actual 15.6B.
• 6:45 French Government Budget Balance. Estimate -93.6B.
• 6:45 French Trade Balance. Estimate -4.8B. Actual -4.9B.
• 10:00 German Factory Orders. Estimate 1.2%.
• 11:30 US NFIB Small Business Index. Estimate 95.2 points.
• 14:00 US IBD/TIPP Economic Optimism. Estimate 46.2 points.

*Key releases are highlighted in bold

*All release times are GMT

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