EUR/USD – Dollar Lower As Jobless Claims Soar

EUR/USD has gained ground in Friday trading. In the European session, the pair is trading in the mid-1.35 range. US Unemployment Claims looked very weak on Thursday, jumping to its highest level since April. Friday has a light schedule, with the major release being UoM Consumer Sentiment. In Germany, inflation data was mixed. Back in Washington, there is talk of progress over the US shutdown and debt ceiling, as high-level talks continue on Capitol Hill.

The shutdown continues, budget talks are deadlocked, but high-level talks are continuing between the Republicans and Democrats in Washington. President Obama held a 90-minute meeting with Republican leaders on Thursday, and the talks continued into the night. The Republicans are likely to make a proposal which would extend the debt ceiling until late November, but would require the Democrats to discuss the budget before that. The White House and Democrats are cool to the idea, but both sides have lowered the rhetoric, as the government shutdown drags on and the debt ceiling hits its limit next week. US Treasury Secretary Jack Lew testified before the Senate finance Committee on Thursday and warned that the political crisis was starting to take a toll on the US economy. With the public upset at both parties for the impasse, the politicians are looking for a way to end the crisis and get the government operating again.

Weekly jobless claims jumped last week, hitting a six-month high. The key indicator jumped from 308 thousand to 374 thousand, way above the estimate of 307 thousand. However, this exceptionally high reading could be a one-time aberration, in part due to technical issues in California. In the end, this critical release hasn’t helped the markets gauge the health of the labor market. Non-Farm Payrolls, another vital employment release, is suspended while the shutdown continues, so the employment picture remains unclear.

The US dollar was broadly higher earlier in the week, as President Obama nominated Susan Yellen to replace Bernard Bernanke as chairman of the Federal Reserve. Bernanke is due to retire early next year, and Yellen, who 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 previous rounds of QE increases. Yellen’s nomination must be confirmed by the Senate, but this is expected to be little more than a formality, as she enjoys wide support from both sides of Congress.

QE tapering, one of the hottest topics in the markets just a few weeks ago, has quickly moved to the backburner, courtesy of the budget and debt ceiling crises which have gripped Washington. Earlier this week, the Fed released the minutes of its September policy meeting. At that meeting, the Fed surprised the markets by not reducing 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 raised speculation that we could see tapering before the end of the year. However, the Fed is reluctant to make any major moves in the midst of the political crisis the US is currently experiencing. As well, the Fed is “data dependent”, and key releases such as Non-Farm Payrolls have been suspended to the shutdown. This makes it difficult for the Fed to get an accurate picture of the true state of the economy. Bottom line? We may not see any QE moves by the Fed before the end of the year.

EUR/USD for Friday, October 11, 2013

EUR/USD October 10 at 11:10 GMT

EUR/USD 1.3567 H: 1.3582 L: 1.3520

EUR/USD Technical

• EUR/USD has posted gains in Friday trading. The euro has shown some strength in the European session, touching a high of 1.3583.
• The pair is testing resistance at 1.3585. This is followed by a resistance line at 1.3649, which has held firm since early February.
• EUR/USD 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

EUR/USD is higher in Friday trading, taking advantage of a weak US Unemployment Claims. With the US releasing key consumer confidence data later today, we could see further movement from the pair in the North American session.

EUR/USD Fundamentals

• 6:00 German Final CPI. Estimate 0.0%. Actual 0.0%.
• 6:00 German WPI. Estimate 0.5%. Actual 0.7%.
• 13:55 US Preliminary UoM Consumer Sentiment. Estimate 77.2 points.
• 13:55 US Preliminary UoM Inflation Expectations.
• 15:00 US FOMC Member Jerome Powell Speaks.
• Day 1 – IMF Meetings.
• Day 2 – G20 Meetings.

*Key releases are highlighted in bold

*All release times are GMT

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