EUR/USD – Dollar Retreat Continues As Euro Knocking on 1.37 Line

The euro continues to post gains against the US dollar in Friday trading. EUR/USD climbed about 160 points on Thursday, and is trading close to the 1.37 line in Friday’s European session. In the US, Congress has agreed to fund the government and raise the debt limit, but only for a few months, so the dollar’s struggles continue. In economic news, US Unemployment Claims dropped from the previous week, while the Philly Fed Manufacturing Index easily beat the estimate. The week is ending on a very quiet note, as there are no economic releases out of Europe or the US. Today’s only events are speeches from four FOMC members.

After weeks of bitter fighting in Congress, the crisis is finally over, as the Republicans and Democrats reached an agreement on Wednesday to reopen the government and raise the debt ceiling. The agreement passed by wide margins in both the Senate and House. However, the deal provides short-term relief only – the government will be funded until January 15, while the debt limit will be raised until February 7. Both sides agreed to discuss the underlying budget issues and try to reach a long-term agreement before December 13. Could we find ourselves in this nightmarish scenario just a few months down the road? The Republicans appear to be the big losers in this saga, as they failed to obtain any concessions regarding the Obama healthcare act and are blamed by most of the public for precipitating an unnecessary political and fiscal crisis.

The fiscal and political crisis which has gripped Washington for weeks has taken a bite out of the economy and hurt US credibility. The government shutdown, which lasted for over two weeks and temporarily threw hundreds of thousand of federal employees out of work, is estimated to have cost the economy $24 billion. The cost of the debt crisis is harder to quantify, but the crisis has certainly eroded faith in the US economy and perhaps in the US dollar as well. This was underscored by a warning from Fitch Ratings on Tuesday, when the agency put US debt on a negative watch. Fitch stated that the crisis had cast doubt over the credit of the United States and had undermined confidence “in the role of the US dollar as the pre-eminent global reserve currency”. Meanwhile, the dollar continues to struggle against the major currencies, and EUR/USD is close to eight-month lows on Friday.

With the crisis in Washington over, at least for while, the markets can shift their attention to US economic data. Unemployment Claims came in at 357 thousand, very close to the estimate of 358 thousand. This figure was an improvement from last week, but still well above previous releases. The shutdown inflated the release, as hundreds of thousands of Federal employees were laid off. The markets will be eagerly waiting for other employment data, such as Non-Farm Payrolls, which was not published during the shutdown and is scheduled to be released on Tuesday.

In the Eurozone, inflation indicators continue to point to weak inflation in the region. Eurozone CPI dropped from 1.3% to 1.1% in September, while Eurozone Core CPI edged lower, from 1.1% to 1.0%. Both readings matched the estimate. The inflation numbers point to weakening economic activity and continue to be a source of concern for Eurozone policymakers. Meanwhile, German Chancellor Angela Merkel may have rolled to an easy victory in last month’s elections, but that has proven to be much easier than forming a government. Merkel continues to have difficulty forming a coalition, as talks with the Greens party have broken off. This leaves the Social Democrats as her sole potential partner and the upcoming negotiations are expected to be protracted and difficult.

EUR/USD for Friday, October 18, 2013

EUR/USD October 18 at 10:05 GMT

EUR/USD 1.3693 H: 1.3695 L: 1.3660

EUR/USD Technical

• EUR/USD continues to post gains in Friday trading. The pair has been moving higher since late in the Asian session and is putting strong pressure on the 1.37 line.
• The pair is facing resistance at 1.3786. This is followed by resistance at 1.3893, which has held firm since October 2011.
• EUR/USD is receiving weak support at 1.3649. This is followed by stronger support at 1.3585.
• Current range: 1.3649 to 1.3786

Further levels in both directions:

• Below: 1.3649, 1.3585, 1.3500, 1.3410 and 1.3335
• Above: 1.3786, 1.3893, 1.4000 and 1.4143

OANDA’s Open Positions Ratio

EUR/USD ratio is showing movement towards long positions on Friday. This is consistent with the movement of the pair, as the euro continues to post gains against the dollar. The ratio continues to be dominated by short positions, indicating a strong trader bias towards the US dollar posting gains against the euro.

EUR/USD continues to rally on Friday and is very close to the 1.37 line. With no economic releases on Friday’s schedule, the pair could settle down in the North American session.

EUR/USD Fundamentals

• 16:30 US FOMC Member Daniel Tarullo Speaks.
• 18:00 US FOMC Member Charles Evans Speaks.
• 19:40 US FOMC Member William Dudley Speaks.
• 20:30 US FOMC Member Jeremy Stein 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.