EUR/USD Edges Higher as Markets Await Key US Data

EUR/USD has edged higher in Thursday’s trading, as the markets await three key releases out of the US later today. These include Unemployment Claims, Existing Home Sales, and the Philly Fed Manufacturing Index. Any unexpected readings from these releases could affect the movement of EUR/USD. The pair has shown some volatility, as it briefly broke the 1.33 line before retracting. Both the US and Europe and produced strong key data on Wednesday. The German Ifo Business Climate Index posted its best showing since July. In the US, Building Permits beat the forecast, climbing to its highest level since August 2008. Housing Starts was down slightly, but within the markets estimate. Existing Home Sales will be released later on Thursday, and the markets are expecting a strong increase from the previous reading. If the indicator can meet or beat the forecast, this would point to further improvement in the US housing sector, which has gone through difficult times and is critical to a sustained economic recovery.

In other developments, Greece received the latest installment of bailout funds from the troika earlier in the week. 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 noted the strong efforts by the other Eurozone members to help Greece remain in the zone. These two developments underscore that significant progress is being made in the Greek debt crisis, and this bodes well for the euro.

The markets have toned down their optimism over the fiscal cliff negotiations, as the gridlock on Capitol Hill Continues. The Republicans and Democrats continue to dig in and blame each other for the crisis, but recent polls indicate that a majority of Americans think that the Republicans need to be more flexible in their positions, especially regarding tax hikes on the wealthy. The Republicans are well aware of public sentiment, and have softened their positions and their rhetoric.

However, there is still a significant gap between the sides as far as tax hikes and the extent of spending cuts to Federal programs. The Republicans have offered tax hikes on individuals earning more than $1 million, but the Democrats want to extend these hikes to earners above $250,000. Clearly frustrated, Republican House Leader John Boehner has warned that if the President Obama doesn’t show more flexibility, he will be “responsible for the largest tax increase in American history.” With the fiscal cliff deadline fast approaching as we near the end of 2012, we could see EUR/USD show more volatility while the political deadlock continues.

EUR/USD for Thursday, Dec 20, 2012

EUR/USD Dec 20 at 10:50 GMT
1.3248 H: 1.3250 L: 1.3214

EUR/USD Technical

EUR/USD is moving higher, and continues to break past resistance lines. Earlier, the pair briefly broke past the 1.33 line, but then retracted to lower levels. The pair has pushed above 1.3235. The next line of resistance is 1.3280. This line has weakened, and could see further activity if the euro continues the present upward trend. On the downside, 1.3235 is a weak support line, and could also be tested as EUR/USD is showing more volatility. The pair is receiving stronger support at the round number of 1.32.

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
EUR/USD has broken out of rangebound trading which characterized the pair earlier in the week and is showing greater volatility. However, the most recent trend has been in an upward direction, as the euro continues to edge higher. Trader sentiment remains strongly tilted in favor of the short positions, and the direction of EUR/USD is highly dependent on the fiscal cliff crisis in the US. If the impasse continues, market sentiment will sour and we could see the dollar improve. Conversely, if there are reports of progress, look for risk appetite to increase which could result bolster the euro.
The euro continues to look good, as it briefly broke above the round number of 1.33 before retracting to more comfortable levels. There appears to be more room for EUR/USD to rise, although this could quickly change based on developments in the fiscal cliff crisis.

EUR/USD Fundamentals
• 7:00 German PPI. Estimate -0.1%. Actual -0.1%.
• 9:00 Italian Retail Sales. Estimate 0.0%. Actual -1.0%.
• 13:30 US Unemployment Claims. Estimate 358K.
• 13:30 US Final GDP. Estimate +2.8%.
• 13:30 US Final GDP Price Index. Estimate +2.7%.
• 14:00 Belgium NBB Business Climate. Estimate -13.1 points.
• 15:00 Eurozone Consumer Confidence. Estimate -26 points.
• 15:00 US Existing Home Sales. Estimate 4.88M.
• 15:00 US Philly Fed Manufacturing Index. Estimate -2.2 points.
• 15:00 US CB Leading Index. Estimate -0.2%.
• 15:00 US HPI. Estimate +0.2%.
• 15:30 US Natural Gas Storage. Estimate -73B.

*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.