EUR/USD – Stable Following Sharp Losses After Fed Minutes

EUR/USD lost over 100 points on Wednesday, following the release of the Federal Reserve’s recent policy meeting. The minutes indicated that the Fed could introduce QE tapering in the next few months if the economy stays steady. The pair has settled down on Thursday and is trading in the mid-1.34 range. Taking a look at economic news, US retail sales numbers were positive, but housing data disappointed. On Thursday, Eurozone PMIs were mixed, as German numbers were strong, but French and Eurozone figures missed their estimates. It’s another busy day in the US, with three key releases on the schedule – PPI, Unemployment Claims and Philly Fed Manufacturing Index.

The dollar got a strong shot in the arm following Wednesday’s release of the Fed policy meeting minutes. Policymakers said the current QE level of $85 billion monthly purchases of bonds could taper “in coming months” if the economy continued to improve. A scaling down of QE is dollar-positive, so we could see the greenback continue to make gains against the major currencies. Earlier in the week, Fed chair Bernard Bernanke said that the employment market improvement was “meaningful” and that interest rates would likely remain low even after QE ends.

The Eurozone continues to struggle, as Manufacturing and Services PMIs pointed to a mixed picture. In France, both PMIs came in below 50, reflecting contraction in the manufacturing and services sectors. Eurozone Manufacturing PMI was within expectations, while Services PMI stayed above 50 but fell short of the estimate. German data was sharper, as both PMIs beat the estimates and remained comfortably above the 50-point level. If we don’t see stronger numbers out of the Eurozone, the euro could find itself caught in some strong southerly winds.

Eurozone inflation indicators continue to post numbers far below the ECB’s inflation target of 2.0%. German Producer Price Index dipped 0.2%, its third decline in the past four releases. The estimate stood at 0.1%. The low inflation numbers underscore weak economic activity in the Eurozone, and this could make things difficult for the euro.

With inflation stuck at low levels despite recent rate cuts, the ECB is considering cutting the deposit rate, which currently stands at 0.0%. However, a move into negative territory would represent unchartered territory and could have negative consequences for the economy. So if the ECB does go ahead and reduce to deposit rate, we could see a “mini cut” of less than 0.25%. The OECD has also expressed concern about the dangers of deflation in the Eurozone and is urging the ECB to consider implementing quantitative easing. QE represents an important tool in the arsenals of central banks such as the Federal Reserve and the Bank of England.

 

EUR/USD for Thursday, November 21, 2013

Forex Rate Graph 21/1/13

EUR/USD November 21 at 12:10 GMT

EUR/USD 1.3565 H: 1.3576 L: 1.3499

 

EUR/USD Technical

S3 S2 S1 R1 R2 R3
1.3325 1.3410 1.3500 1.3585 1.3649 1.3786

 

  • EUR/USD has edged higher in Thursday’s European session.
  • On the downside, the round number of 1.3500 continues to provide support. This is followed by a support level at 1.3410.
  • The pair is facing resistance at 1.3585. This is a weak line which could face pressure if the euro continues to improve. Next, there is resistance at 1.3649, which has been remained intact since late October.
  • Current range: 1.3500 to 1.3585

Further levels in both directions:

  • Below: 1.3500, 1.3410, 1.3325, 1.3265 and 1.3149
  • Above: 1.3585, 1.3649, 1.3786 and 1.3893

 

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged in Thursday trading. This is not reflected in the pair’s movement, as the euro has posted slight gains against the dollar. A large majority of the open positions remain short, indicative of a trader bias towards the dollar posting gains against the euro.

The pair is trading in the mid-1.35 range. We could see some strong movement from the pair as the US releases key data later on, highlighted by Unemployment Claims.

 

EUR/USD Fundamentals

  • 8:00 French Flash Manufacturing PMI. Estimate 49.6 points. Actual 47.8 points.
  • 8:00 French Flash Services PMI. Estimate 51.3 points. Actual 48.8 points.
  • 8:30 German Flash Manufacturing PMI. Estimate 52.3 points. Actual 52.5 points.
  • 8:30 German Flash Services PMI. Estimate 53.1 points. Actual 54.5 points.
  • 9:00 Eurozone Flash Manufacturing PMI. Estimate 51.6 points. Actual 51.5 points.
  • 9:00 Eurozone Flash Services PMI. Estimate 51.9 points. Actual 50.9 points.
  • 13:30 US PPI. Estimate -0.2%.
  • 13:30 US Unemployment Claims. Estimate 333K.
  • 13:30 US Core CPI. Estimate 0.1%.
  • 14:00 US Flash Manufacturing PMI. Estimate 52.6 points.
  • 14:45 FOMC Member Jerome Powell Speaks.
  • 15:00 Eurozone Consumer Confidence. Estimate -14 points.
  • 15:00 US Philly Fed Manufacturing Index. Estimate 15.8M.
  • 15:30 US Natural Gas Storage. Estimate -34B.
  • 16:00 German Buba President Jens Weidmann Speaks.
  • 18:00 FOMC Member James Bullard 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.

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.