EUR/USD – Higher after Strong German Business Climate Data

EUR/USD broke out of this week’s rangebound trading, as it climbed to its highest levels since May. There was good news out of Germany, as the German Ifo Business Climate Index looked sharp, beating the market estimate and posting its best showing since July. Greece received the latest installment of bailout funds this week, and there was more good news for Athens from Standard and Poor’s. The respected rating agency raised Greece’s credit rating by six levels, from “selective default” to “B minus”. Standard & Poor’s had warm words for the recent measures taken by the Greek government, including significant spending cuts. The rating agency also praised the efforts of other Eurozone states to help Greece remain a member. These two developments underscore that significant progress is being made in the Greek debt crisis, and this bodes well for the euro.

In Washington, negotiations over the approaching fiscal cliff continue at an intensive pace between the Democrats and Republicans. Although there have not been any dramatic breakthroughs to report, the markets are cautiously optimistic that lawmakers on Capitol Hill will reach an agreement shortly. Polls indicate that most Americans blame the Republicans for the impasse and failure to resolve the crisis. The Republicans have responded by softening their positions and rhetoric, and are sounding more conciliatory. They have reluctantly agreed to tax hikes on the highest income earners, but the Democrats want these hikes to cover those earning more than $400,000 (previously $250,000). Other significant gaps remain between the two sides, especially with regard to the extent of spending cuts to Federal programs. With Q4 behind us, the markets are closely monitoring the progress in the talks. We could see EUR/USD improve if there is any progress, and retract if the negotiations seem to be stalled.

After a quiet start to the week, there are some important releases out of Europe and the US today. As mentioned, German Ifo Business Climate looked sharp. However, Euro-zone Current Account disappointed, falling well below the estimate. In the US, today’s highlight is Building Permits.

EUR/USD for Wednesday, Dec 19, 2012

EUR/USD Dec 19 at 10:45 GMT
1.3279 H: 1.3283 L: 1.3224

EUR/USD Technical

S3 S2 S1 R1 R2 R3
1.3030 1.3080 1.3135 1.3235 1.3280 1.3385

EUR/USD has broken out of the tight range which we saw earlier this week. In the Asian session, the pair climbed to 1.3256, and then consolidated at 1.3240. EUR/USD continues to move higher in the European session, as it tests resistance at 1.3280. If this line falls, there is room for the euro to continue higher, as there is no significant resistance until 1.3390.
• Current range: 1.3235 to 1.3280
Further levels in both directions:
• Below: 1.3235, 1.32, 1.3135, 1.3080, 1.3030, 1.2960, 1.2880, 1.28, 1.2750, 1.2690, 1.2624, 1.2590, 1.25, 1.2440, 1.2390 and 1.2250.
• Above: 1.3280, 1.3385, 1.3485 and 1.3575.

OANDA’s Open Position Ratios
After appearing listless for most of this week. EUR/USD has broken out of rangebound trading and is moving higher against the dollar. Trader sentiment is strongly tilted in favor of the short positions, and there is room for the pair to retract, especially if there are any negative developments in the fiscal cliff talks.

There were two developments which have bolstered the euro against the dollar. First, the S&P raised its rating on Greek debt from “selective default” to “B minus”. As well, there was a strong business climate release out of Germany. We could see the euro continue to shine and push towards the 1.33 line.

EUR/USD Fundamentals
• 9:00 German Ifo Business Climate. Estimate 101.9 points. Actual 102.4 points.
• 9:00 Eurozone Current Account. Estimate +5.8B. Actual +3.9B.
• 13:30 US Building Permits. Estimate 0.88M.
• 13:30 US Housing Starts. Estimate 0.87M.
• 15:30 US Crude Oil Inventories. Estimate -0.9M.

*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

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

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