EUR/USD – Euro Stays Strong, Shrugs Off Disappointing German Business Climate

EUR/USD continues to trade at high levels, as the pair trades slightly above the 1.38 line in Friday’s European session. In economic news, German Ifo Business Sentiment fell short of the estimate. Over in the US, today’s key release is Core Durable Goods Orders. The markets will also be keeping a close eye on the UoM Consumer Sentiment, an important consumer confidence indicator. On Thursday, US Unemployment Claims came in higher than expected, while Eurozone PMIs missed their estimates.

It’s been an uninspiring week for US employment releases. On Thursday, Unemployment Claims came in at 350 thousand, above the estimate of 343 thousand. This weak figure came on the heels of Non-Farm Payrolls, which slipped to a six-month low. The US unemployment rate dipped to 7.2%, a five-year low, but this does not point to increased employment, as the participation rate remained at 63.8%, its lowest level since 1978. These figures indicate that the US labor market continues to have difficulty creating new jobs. The weak readings are putting pressure on the US dollar, which finds itself at two-year lows against the euro.

Euro PMIs were weak across the board on Thursday. PMI numbers out of Germany, France and the Eurozone all fell short of their estimates and most posted a drop compared to the previous release. However, all except French Flash Manufacturing PMI remained above the 50 level, pointing to slight expansion. The latter has been below the 50 level since January 2012, indicating ongoing contraction in the French manufacturing sector.

There was some optimism and relief in the markets last week, as the Republicans and Democrats finally reached an agreement last week to reopen the government and raise the debt ceiling, following weeks of fighting in Congress. 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 have agreed to discuss budget issues and try to reach a long-term agreement before December 13. The bottom line? The US could face a repeat of the shutdown and debt crisis started in just a few months. At the same time, the public is angry at lawmakers for allowing the budget deadlock to drag on for weeks, and with congressional elections only a year away, politicians on Capitol Hill should think twice before plunging the country into another fiscal and political crisis.

The US government is again functioning and a default has been averted, but the agreement hammered out in Congress last week provides short-term relief only, as it raises the debt ceiling until early February and funds the government until mid-January. The underlying budgetary issues remain unresolved, consumer confidence has been shaken and employment numbers are not looking good. Given this situation, the Fed is unlikely to push the taper trigger until early 2014, perhaps not before March or April.

 

EUR/USD for Friday, October 25, 2013

Forex Rate Graph 21/1/13

EUR/USD October 25 at 8:50 GMT

EUR/USD 1.3821 H: 1.3833 L: 1.3785

 

EUR/USD Technical

S3 S2 S1 R1 R2 R3
1.3585 1.3649 1.3786 1.3893 1.4000 1.4143

 

  • EUR/USD is steady in Friday trading, as the pair trades close to the 1.38 line. The pair pushed across the 1.38 line late in the Asian session.
  • On the downside, 1.3786 is providing support. This weak line could be tested if the dollar shows any upward movement. This is followed by strong support at 1.3649.
  • EUR/USD faces resistance at 1.3893. This is followed by strong resistance at the key 1.40 line, which has held firm since October 2011.
  • Current range: 1.3786 to 1.3893

 

Further levels in both directions:

  • Below: 1.3786, 1.3649, 1.3585, 1.3500 and 1.3410
  • Above: 1.3893, 1.4000, 1.4143 and 1.4247

 

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged on Friday. This is consistent with the pair’s movement, which has been very limited. The ratio continues to be dominated by short positions, indicating a strong trader bias towards the US dollar moving higher against the euro.

EUR/USD remains at high levels, as the pair trades above the 1.38 line. With the US releasing key manufacturing data later in the day, we could see some volatility from the pair.

 

EUR/USD Fundamentals

  • 8:00 German Ifo Business Climate. Estimate 108.2 points. Actual 107.4 points.
  • 8:00 Eurozone M3 Money Supply. Estimate 2.3%. Actual 2.3%.
  • 8:00 Italian Retail Sales.  Estimate 0.2%. Actual 0.0%.
  • 8:00 Eurozone Private Loans. Estimate -1.9%. Actual -1.9%.
  • Day 2 – EU Economic Summit.
  • 12:30 US Core Durable Goods Orders. Estimate 0.6%.
  • 12:30 US Durable Goods Orders. Estimate 1.7%.
  • 13:55 US Revised UoM Consumer Sentiment. Estimate 75.8 points.
  • 13:55 US Revised UoM Inflation Expectations.
  • 14:00 US Wholesale Inventories. Estimate 0.3%.

 

*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.