EUR/USD – Euro Trading at Multi-Month Highs

EUR/USD is trading in the 1.3360 range, following its sharp gains late last week. The rally started after the European Central Bank to hold its benchmark interest rate at the current level of 0.75%, and the euro has jumped over three cents in that short time period. Eurozone data continues to look weak, as both Eurozone and Italian Industrial Production were well below the market estimate. In the US, the Trade Deficit widened to its highest levels since April. The markets will be paying close attention as Federal Reserve Chairman Bernard Bernanke speaks later on Monday.

The euro continues to trade at levels not seen since last April, after the ECB maintained it benchmark interest rate at its current level of 0.75%. Although this 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. Despite this optimism, recent data from the Eurozone has not been positive. Unemployment continues to be major headache, with the major economies struggling with high unemployment, and the Eurozone rate stuck at 11.8%. Manufacturing, PMIs and consumer data have also looked sluggish. Germany, the locomotive of Europe, continues to produce weak number. 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.

Taking a look at fundamentals, the US released Trade Balance numbers on Friday. The numbers caught the markets off guard, as the Trade Deficit ballooned last month, posting a deficit of $48.7 billion. This was way above the estimate of $41.1 billion, and represented the highest deficit levels since April. The figures indicate a strong demand for imports by US consumers, a sign of greater consumer spending. Increased consumer confidence and spending is a critical engine for economic growth, but whether the recovery has taken hold and the US economy is headed in the right direction is not at all certain.

There are worrying signs, with the staggering US debt still out of control and stubbornly high unemployment. In Europe, Monday’s releases were very weak. German WPI came in at a flat 0.0%, falling below the estimate of a 0.5% gain. Italian Industrial Production fell 1.0%, while the forecast stood at -0.1%. Today’s highlight, Eurozone Industrial Production, was a major disappointment. The indicator fell by 0.3%, well below the estimate of a gain of 0.2%.

EUR/USD for Monday, January 14, 2013

EUR/USD January 14 at 11:10 GMT
1.3361 H: 1.3404 L: 1.3349

EUR/USD Technical

EUR/USD continues to trade at multi-month highs, and tested the 1.34 line earlier on Monday. This line continues to provide resistance, as the pair has retreated to the 1.3360 range. On the downside, 1.3350 is the next line of support. This is a weak line, and could see activity if the euro loses any ground against the dollar.
Current range: 1.3350 to 1.34.

Further levels in both directions:
• Below: 1.3350, 1.3280, 1.3240, 1.3170, 1.3130, 1.3080, 1.3030, 1.30, 1.2960 and 1.2890.
• Above: 1.34, 1.3480, 1.3568 and 1.3627, 1.3797 and 1.3858.

OANDA’s Open Position Ratios

EUR/USD ratio continues to show a strong movement towards short positions, as the long position component has decreased substantially over the past few days. This could signal a correction after the huge gains the euro has posted against the dollar. The euro has retracted after breaking above the 1.34 line, but we’ll have to wait and see if the pair can sustain a downward move.

The euro has been pummeling the US dollar, gaining over three cents since Thursday? The huge rally has leveled off in Monday trading, but the pair continues to trade at multi-month levels. Eurozone data was weak today, and this could help the greenback makeup some ground.

EUR/USD Fundamentals

• 1:20 US FOMC Member Charles Evan Speaks at financial forum in Hong Kong.
• 7:00 German WPI. Estimate 0.5%. Actual 0.0%.
• 9:00 Italian Industrial Production. Estimate -0.1%. Actual -1.0%.
• 10:00 Eurozone Industrial Production. Estimate 0.2%. Actual -0.3%.
• 21:00 US Fed Chairman Bernard Bernanke Speaks at University of Michigan in Ann Arbor.

*Key releases are highlighted in bold
*All release times are GMT

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