The currency markets were busy after the Federal Reserve announced on Wednesday that it would implement further monetary easing, in order to help the fragile US recovery. Under this program, known as QE4, the Fed will purchase an additional $45 billion per month in Treasury holdings starting in January. As the Fed is currently purchasing $40 billion in mortgage bonds, this brings the total to some $85 billion per month. This level is expected to continue well into 2013. The Fed is hoping that this step will bolster the US economy and lower unemployment, which remains close to 8%. Operation Twist, in which the Fed swapped short-term Treasuries for longer term U.S. government debt, will be phased out at the end of December.
The Federal Reserve also announced that it is maintaining the benchmark interest rate at 0% – 0.25%.. Following the announcement, the dollar lost ground against the euro and other major currencies. As well the central bank maintained the benchmark interest rate at below 0.25%, and the Fed noted that it does not expect to change these very low rate levels for the foreseeable future. In Brussels EU leaders from the bloc’s 27 countries are gathering for their final summit of 2012. High on the agenda is a proposal for the ECB to become the single supervisor of all 6,000 banks in the Eurozone.
The ECB would, in essence take on the role of a “super banking commissioner, responsible for providing supervisory oversight of all banks in the Eurozone, and perhaps in the EU as well. The chair of the summit, Herman Van Rompuy, is looking for wide support for the program at Thursday’s summit, with the details to be worked out sometime in 2013. However, Germany may object to the proposal, which could be a major obstacle. Germany would prefer that German banks and saving institutions governed by a German banking regulator rather than the ECB, even though the latter is based in Frankfurt. There are no economic releases out of the Eurozone, as Brussels hosts the EU Summit and the Euro-zone Meetings. In contrast, there is plenty of activity in the US, with four key releases scheduled for later today. These include Core Retail Sales, Retail Sales, PPI and Unemployment Claims.
EUR/USD for Thursday, Dec 13, 2012
EUR/USD Dec 13 at 10:20 GMT
1.3051 H: 1.31 L: 1.3047
S3 S2 S1 R1 R2 R3
1.2880 1.2960 1.3030 1.3080 1.3030 1.3170
EUR/USD responded to the QE4 announcement by climbing all the way to the 1.31 line, but has since retracted to the 1.3050 range. The pair finds itself between some narrow support and resistance bands, with 1.3080 on the top end and 1.3030 on the bottom. Both are weak lines, and could see some activity during today’s European and North American sessions.
• Current range: 1.3030 to 1.3080
Further levels in both directions:
• Below: 1.2960, 1.2880, 1.28, 1.2750, 1.2690, 1.2624, 1.2590, 1.25, 1.2440,
• 1.2390 and 1.2250.
• Above: 1.3030, 1.3080, 1.3130, 1.3170, 1.3290 and 1.34.
OANDA’s Open Position Ratios
After moving higher following the Fed announcement, EUR/USD has given up most of those gains. The bias continues in favor of short positions. The pair is under pressure and could continue to move downwards towards to the 1.30 line.
The euro responded positively to the Fed announcement of further quantitative easing. EUR/USD pushed as high as the 1.31 line, but has since retracted. Traders should pay attention to today’s key releases out of the US. If there are some unexpected readings from this data, we could see EUR/USD show some volatility.
•9:00 ECB Monthly Bulletin.
•All Day: EU Economic Summit (Day 1 of 2).
•All Day: Eurogroup Meetings.
•13:30 US Core Retail Sales. Estimate 0.0%.
•13:30 US PPI. Estimate -0.5%.
•13:30 US Retail Sales. Estimate +0.5%.
•13:30 US Unemployment Claims. Estimate 368K.
•13:30 US Core PPI. Estimate +0.2%
•15:00 US Business Inventories. Estimate +0.4%.
•15:50 US Natural Gas Storage. Estimate -4B.
•18:00 US 30-year Bond Auction.
*Key releases are highlighted in bold
*All release times are GMT