EUR/USD – Under Pressure As German Inflation Numbers Point Lower

EUR/USD remains under pressure in Tuesday trading. The pair is trading at the 1.34 line in Tuesday’s European session. German inflation releases posted declines on Tuesday, underscoring continuing weak inflation in the Eurozone. It’s another quiet day in the US, with no US releases on Tuesday.

Germany released inflation data on Tuesday, and the numbers did not impress. Final CPI dropped 0.2%, its first decline since April. The index has not looked strong lately, posting two consecutive releases of 0.0%. There was no relief from German Wholesale Price Index, which posted a sharp decline of -1.0%, well off the estimate of 0.3%. It was the index’s worst showing since June 2012. Weak Eurozone inflation was a major factor in the ECB’s rate cut last week, and the ECB could be forced to take further monetary steps if Eurozone and German inflation numbers do not move towards the ECB’s inflation target of 2%.

The surprise ECB rate cut and superb Non-Farm Payrolls are the latest setbacks for the struggling euro. The currency looked sharp just a couple of weeks ago, when it was trading above the 1.38 line. Since then, the euro has taken a sharp turn downwards, shedding over four cents against the US dollar. With increasing talk of a Dectaper from the Federal Reserve, there is more room for the euro to
fall.

The markets had very low expectations from Non-Farm Payrolls, one of the most important economic indicators. The estimate for the October release stood at just 121 thousand, as there was concern that the reading would be artificially low due to the government shutdown in October. However, the indicator put those concerns to rest, as the indicator soared to 204 thousand, its highest level in eight months. The outstanding NFP figure bolstered the US dollar against the major currencies, and has increased speculation that the Fed might press the tapering trigger in December. Such talk could bolster the US currency, as a reduction in QE is bullish for the dollar. At the same time, speculation about a scaling down in QE introduces uncertainty into the markets, which could lead to some volatility from EUR/USD.

The ECB surprised the markets on Thursday when it reduced its benchmark interest rates by 0.25%, to a record low rate of 0.25%. The marginal rate was cut to 0.75% from 1.0%, while the deposit rate was left at unchanged at 0.0%. Following the decision, ECB head Mario Draghi stated that inflation in the Eurozone remains very low and that this would likely continue in the coming months. He added that further monetary easing remained an option until economic conditions improved. The markets had expected the ECB to hold rates at 0.50%, but a combination of weak growth and inflation well below the ECB’s target of 2% led to the ECB cutting rates for the first time since April.

The French economy continues to disappoint, as Industrial Production declined 0.5%, well off the estimate of a 0.4% gain. This marked the fourth decline for the manufacturing indicator in five releases. The trade surplus widened to -5.8 billion euros in October, a four-month high. This was well off the forecast of -4.7 billion. Adding oil to the fire, the Standard and Poor’s credit rating agency downgraded France’s sovereign rating one notch, from AA+ to AA. In October, S&P stated that although France had emerged from the recession, long-term growth prospects were “mired in risks and uncertainties”. However, the outlook has improved from negative to stable, meaning that another downgrade is unlikely in the next two years.

 

EUR/USD for Tuesday, November 12, 2013

Forex Rate Graph 21/1/13

EUR/USD November 12 at 11:20 GMT

EUR/USD 1.3395 H: 1.3408 L: 1.3359

 

EUR/USD Technical

S3 S2 S1 R1 R2 R3
1.3149 1.3265 1.3325 1.3410 1.3500 1.3585

 

  • EUR/USD is steady in Tuesday trading, as the pair trades close to the 1.34 line. The proximate support and resistance lines (R1 and S1 above) remain in place.
  • EUR/USD continues to receive support at 1.3325. This is followed by a support level at 1.3265, which has remained intact since mid-September.
  • The pair is facing resistance at 1.3410. This is a weak line which could face strong pressure during the day. This is followed by a strong resistance line at 1.3500.
  • Current range: 1.3325 to 1.3410

Further levels in both directions:

  • Below: 1.3325, 1.3265, 1.3149 and 1.3049
  • Above: 1.3410, 1.3500, 1.3585, 1.3649 and 1.3786

 

OANDA’s Open Positions Ratio

EUR/USD ratio has reversed directions on Tuesday, pointing to gains by short positions. This is reflected in the pair’s movement, as the euro has posted modest losses. A large majority of the open positions remain short, indicative of a trader bias towards the dollar continuing to post gains against the euro.

After taking a tumble last week, the euro remains steady, trading close to the 1.34 line. With no major releases on Tuesday from the Eurozone or the US,  today’s movement could be limited in scope.

 

EUR/USD Fundamentals

  • 6:00 German Final CPI. Exp. -0.2%, Actual -0.2%.
  • 6:00 German WPI. Exp. 0.3%, Actual -1.0%.

 

*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.