EUR/USD – Jumps After ECB Rate Announcement

EUR/USD was sharply higher following the decision on Thursday by the European Central Bank to hold its benchmark interest rate at the current level of 0.75%. The pair shot up around two cents on Thursday, and is trading in the 1.3270 range. The euro was also bolstered by strong data out of France, as French Industrial Production beat market expectations. In the US, Unemployment Claims continues to look weak, as the key employment indicator failed to meet the estimate for the second straight reading. It looks to be a less dramatic day on Friday, with no releases out of the Eurozone. There are three releases out of the US, highlighted by Trade Balance.

In Europe, more of the same turned out to be big news for the euro. At its policy meeting on Thursday, the ECB maintained it benchmark interest rate at its current level of 0.75%. Although this move (or non-move) was widely expected, market sentiment rose after the announcement, for two reasons. First, the decision to stay the course was unanimous, and ECB President expressed his confidence in the Eurozone economy. Despite the serious challenges that the Eurozone is facing, notably the debt crisis, the ECB decided not to change its interest rate policy in order to bolster the Eurozone. Second, there was no indication from the ECB that it might resort to slashing rates in the near future.

In doing so, the ECB is sending a strong message to the markets that for the near future at least, it is likely to make do with unconventional monetary steps as it tries to help along the Eurozone economy. After the ECB policy meeting on Thursday, ECB President Draghi expressed confidence that the Eurozone economy will bounce back in about 2013. No doubt the markets share this sentiment, but the proof will be in the Eurozone pudding. Recent data continues to point to stubbornly high unemployment and weak growth. For any kind of recovery to get on track, these numbers will have to improve. Otherwise, market sentiment will tumble, and likely take the euro with it.

There was more disappointing data out of the US on Thursday, as Unemployment Claims were released. The key employment indicator came in at 371 thousand news claims, well above the estimate of 361K. This marked the second straight reading in which the indicator failed to meet market expectations. Is the US recovery in trouble? There are worrying signs, with the staggering US debt still out of control, high unemployment and very weak consumer confidence.

In the US, we can expect more battles in Congress as early as next month. The fiscal cliff crisis in the US went down to the wire last week, and the agreement left two critical issues – the debt ceiling and spending cuts, for another day. Democrats and Republicans are likely to tangle in Congress at the end of February, as the country reaches the $16.4 trillion debt ceiling. If the debt ceiling is not raised (yet again), the result would be the default of the US government, which undoubtedly would cause chaos in the markets. Republicans have vowed to condition raising the debt ceiling on deep spending cuts, which the Democrats strongly oppose. In March, the fiscal cliff could again rear its head, as $110 billion in spending cuts will kick in if Congress cannot agree on a new budget.

EUR/USD for Friday, January 11, 2013

EUR/USD January 11 at 10:40 GMT
1.3268 H: 1.3283 L: 1.3249

EUR/USD Technical

S3 S2 S1 R1 R2 R3
1.3130 1.3170 1.3240 1.3280 1.3350 1.34

EUR/USD broke out of lackluster trading, rising sharply on Thursday. The pair is receiving support at 1.3240. the line of 1.3170 is a stronger support level. On the upside, 1.3280 is the next line of resistance. This is a weak line, and could be tested later today if the euro continues to improve.

Current range: 1.3240 to 1.3280.

Further levels in both directions:
• Below: 1.3240, 1.3170, 1.3130, 1.3080, 1.3030, 1.30, 1.2960, 1.2890 and 1.28.
• Above: 1.3280, 1.3350, 1.34, 1.3480, 1.3568 and 1.3627.

OANDA’s Open Position Ratios

The EUR/USD rati0 has reversed direction, with a strong move towards short positions. With the euro posting large gains following the ECB rate announcement, this could signal an imminent correction, and we could see the US dollar recover from its steep losses. The pair has been steady in Friday trading.
The markets could hardly keep up with the surging euro, as the currency jumped about 2 cents against the US dollar on Thursday. Will the upward trend continue? The pair has leveled off in Friday trading, and we could see it take a well-deserved break into the weekend.

EUR/USD Fundamentals

• 13:30 US Trade Balance. Estimate -41.1B
• 13:30 US Import Prices. Estimate 0.1%
• 19:00 US Federal Budget Balance. Estimate -11.6B

*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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