After a tumultuous Tuesday, EUR/USD continues to be active, and has moved away from the 1.33 line. The pair was trading in the 1.3330 range. In the US, Existing Home Sales was a disappointment, falling well below the market estimate. There are just two minor releases scheduled for Wednesday.
Experts have been saying that the Eurozone economy will remain subdued for most of 2013, but the economic sentiment indicators clearly weren’t paying attention. The well-respected ZEW Economic Sentiment release pointed to strong improvement in the Eurozone and Germany. Both indicators hit multi-year highs, with their best performance since May 2010. German ZEW Economic Sentiment jumped to 31.5 points, crushing the estimated of 12.2 points. Eurozone ZEW Economic Sentiment also sizzled, hitting 31.2 points. This easily beat the forecast of 14.1 points. The German data was particularly welcome, as the Eurzone’s largest economy has looked sluggish of late, and a sustained recovery will depend on Germany getting back on track. If these positive numbers are reflected in other releases, we could see the euro gain more ground.
The Eurogroup of Eurozone Finance Ministers met in Brussels earlier in the week, and quickly approved the next installment of bailout funds for Greece, in the amount of 9.2 billion euros. This tranche is made up of EUR 7.2 billion in bonds, to recapitalize Greek banks, and EUR 2 billion in cash for government expenses. The decision boosted market sentiment, as the move was seen as a vote of confidence by the ECB in the ability of Greece to carry on with its economic restructuring program. The Eurogroup also began talks on how to best utilize the European Stability Mechanism, the Eurozone’s emergency bailout fund. The Eurogroup is taking a close look at direct bank recapitalization, whereby banks would borrow directly from the ESM. This is intended to replace the process whereby governments simply borrow more funds to bolster their ailing banks. As with most major issues affecting the Eurozone, there are deep divisions on this issue. The front-line members who are being touted for further aid include Spain, Cyprus and Greece.
In the US, Congress is getting ready to do battle over the next round of budget negotiations, which have been stalled due to sharp disagreements between the Republicans and Democrats. The Republicans have announced that they will table a proposal in Congress which would extend the debt ceiling until April 15. This would allow the U.S. government to borrow enough money to keep it fully operating for the next three months until the sides can reach an agreement. The recent fiscal cliff agreement postponed the hot issues of spending cuts and the huge US debt, but another fiscal deadline is not far away. On March 1, steep spending cuts to defense and domestic programs are scheduled to take place. After a short period of calm, we can expect more fireworks on Capitol Hill.
EUR/USD for Wednesday, January 23, 2013
EUR/USD January 23 at 11:40 GMT
1.3321 H: 1.3330 L: 1.3285
EUR/USD is quiet following strong volatility on Tuesday. The proximate support and resistance lines (S1 and R1 above) remain in place, and 1.3280 continues to provide weak support. This line could face activity if the euro dips below the 1.33 line. On the upside, 1.3350 is the next line of resistance. It is followed by the round number of 1.34.
Current range: 1.3280 to 1.3350.
Further levels in both directions:
- Below: 1.3280, 1.3240, 1.3170, 1.3130, 1.3080, 1.3030, 1.30 and 1.2960, 1.2835 and 1.2805.
- Above: 1.3350, 1.34, 1.3480, 1.3568 and 1.3627, 1.3797 and 1.3858.
OANDA’s Open Position Ratios
The EUR/USD ratio continues to fluctuate, with a reversal in Tuesday’s movement towards short positions. We are currently seeing movement away from short positions. This could be a sign that EUR/USD, which is not showing much movement, will lose ground. Trader sentiment continues to be strongly biased in favor of short positions.
After taking traders for a roller-coaster ride on Tuesday, EUR/USD has taken a break from the action. There are only two minor economic releases today, so the markets will have little to go by as far as fundamentals. We could see the pair continue to hug the 1.33 line.
- 14:00 US House Price Index. Estimate 0.7%.
- 15:00 Eurozone Consumer Confidence. Estimate -26 points.
*Key releases are highlighted in bold
*All release times are GMT
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