EUR/USD – Yellen Nominated, Euro Halts Sharp Slide

EUR/USD is showing little movement on Thursday, as the pair trades slightly above the 1.35 line. The pair has steadied after the sharp losses the euro sustained on Tuesday. There was plenty of developments surrounding the Federal Reserve on Wednesday. As expected, President Obama nominated Janet Yellen to head the Federal Reserve. As well, the FOMC Meeting minutes indicated that most policymakers favor tapering QE before the end of the year. In economic news, French and Italian Industrial Production came in well below their estimates. Wednesday’s highlight is US Unemployment Claims.

The dollar was broadly higher in Wednesday, trading as President Obama nominated Susan Yellen to head the Federal Reserve. Yellen will take over from Bernard Bernanke, who is due to retire early next year. Yellen, who currently serves as Fed vice-chairwoman, became the leading candidate after former Treasury Secretary Lawrence Summers withdrew his candidacy. Yellen is considered dovish in stance and has supported Bernanke in three rounds of QE increases. Her nomination must be confirmed by the Senate, but she is expected to be widely endorsed.

The minutes of the September Federal Reserve policy meeting were released on Wednesday. At the meeting, the Fed surprised the markets by opting to hold the course with its bond-purchasing program, which currently runs at $85 billion/mth. The minutes stated that the decision not to begin tapering was a “close call”. This has increased speculation that we could see tapering before the end of the year. However, the monkey wrench in all this is the fiscal uncertainty from shutdown and looming debt crisis. As well, the Fed is heavily dependent on key releases such as Non-Farm Payrolls, which have been suspended to the shutdown. So it’s unlikely that we’ll see any moves to reduce QE before December at the earliest.

The US shutdown has now entered its second week, and neither side seems to be showing any flexibility. Polls show that most of the public blames the Republicans for the impasse, and this is likely increasing the pressure on the Republicans to agree to pass the budget so that the government can resume operating. The economic damage from the shutdown is not expected to be substantial if the crisis is resolved soon, but the political fallout will likely be significant.

As if Congress doesn’t have its plate full with the budget deadlock and shutdown, a debt ceiling crisis and could unleash a devastating financial crisis. The US has a debt worth $16.7 trillion, and the country 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. There is a lot of bad blood between the Republicans and Democrats over the shutdown, and this will undoubtedly complicate negotiations over the debt ceiling. There are signs of some progress, with talks between the sides focusing on the possibility of a short-term increase in the debt limit, which would avoid a default, for now.

EUR/USD for Thursday, October 10, 2013

EUR/USD October 10 at 10:20 GMT

EUR/USD 1.3521 H: 1.3533 L: 1.3488

EUR/USD Technical

• EUR/USD is stable in Thursday trading. The pair tested the 1.35 line in the Asian session but has edged higher.
• The pair continues resistance at 1.3585. This is followed by resistance at 1.3649, which has held firm since early February.
• The pair is putting strong pressure on the round number of 1.35. Will this key support line hold? 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 unchanged in Thursday trading. This is reflected in the current movement of the pair, which is trading in a narrow range. The ratio continues to have a solid majority of short positions, indicative of a strong trader bias towards the US dollar gaining ground against the euro.

After sustaining sharp losses on Wednesday, EUR/USD is struggling to remain above the 1.35 line. With the US releasing key employment data later in the day, we could see some movement from the pair if the release is not in line with market expectations.

EUR/USD Fundamentals

• 6:45 French Industrial Production. Estimate 0.7%. Actual 0.7%.
• 8:00 ECB Monthly Bulletin.
• 8:00 Italian Industrial Production. Estimate 0.6%, Actual -0.3%.
• 12:00 US Treasury Secretary Jack Lew Speaks. Lew will testify on the debt limit before the Senate Finance Committee.
• 12:30 US Unemployment Claims. Estimate 307K.
• 13:45 US FOMC Member James Bullard Speaks.
• 14:30 US Natural Gas Storage. Estimate 96B.
• 16:20 ECB President Mario Draghi Speaks.
• 17:01 US 30-year Bond Auction.
• 16:45 US FOMC Member Daniel Tarullo 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.