EUR/USD – Euro Barrels Across 1.34 Line After Positive German, US Numbers

The euro has climbed sharply against the US dollar, pushing above the 1.34 line for the first time in almost a year. The euro was boosted by strong releases out of Germany and the US. German PMIs were strong, and US Unemployment Claims easily beat the market estimate. The trading week wraps up with two key releases. German Ifo Business Climate looked sharp,  climbing to an eight-month high. US releases wrap up the week with New Home Sales.

The euro flexed some muscle as the markets cheered positive data out of Germany and the US on Thursday. German PMIs were excellent, as both Services and Manufacturing PMIs easily beat the market forecast. Manufacturing PMI climbed to 48.8 points, beating the estimate of 47.7 points. This was the key manufacturing index’s best showing since February. Services PMI looked even better, climbing to 55.3 points. This easily exceeded the forecast of 52.0 points, and was the highest level seen since May 2011.The news was just as upbeat across the pond, as US Unemployment Claims were red hot for a second straight week. The number of unemployment claims fell to 330 thousand, crushing the estimate of 359 thousand. Almost lost in the crowd was an outstanding release from Eurozone Current Account, which posted a surplus of 14.8 billion euros. The estimate stood at just 6.5 billion. The euro jumped after Eurozone PMIs were released, but a careful reading of the data shows that the news wasn’t all positive. German Manufacturing PMI did beat the market estimate, but remains below the 50 level, pointing to further contracting in the German Manufacturing Sector. French numbers were weak, with both Services and Manufacturing PMIs posting readings in the low-40 range. Both PMIs were well below market expectations. Eurozone PMIs were somewhere in the middle, as both the Services and Manufacturing PMIs beat the estimates. However, both indexes fell below the 50 line, pointing to continuing contraction in the Eurozone services and manufacturing sectors.

After a disappointing start to 2013. German numbers have been impressive. ZEW Economic Sentiment soared to its highest level since May 2010, and Thursday’s solid PMIs gave a sharp boost to the euro. The week wrapped up on a high note, as German Ifo Business Climate climbed to 104.2 points, its best showing since last May. The estimate stood at 103.1 points. The positive readings from the Eurozone’s largest economy will be welcome news to markets hungry for good news. In order for the Eurozone to get back on its feet, it is critical for the German locomotive to get back on track.

In the US, uncertainty about the extent of the recovery lingers, as economic data continues to point in all directions. The employment situation appears to be improving, as the Unemployment Claims indicator has looked outstanding for the past two weeks. Retail Sales also has looked sharp. On the other hand, we continue to see sluggish manufacturing and consumer sentiment data. As well, the most recent housing numbers fell below the estimate. With the US economic indicators sending mixed signals about the extent of the recovery, the uncertainty is likely to be reflected in the currency markets. The US Federal Reserve has not been in the headlines lately, but is busy at work, as it increased its purchases of securities in January from $40 billion to $85 billion. This has pushed  the Fed’s balance sheet to a record $3 trillion. Despite these measures, the US recovery remains slow, and unemployment is still high at 7.8%. The markets will be paying close attention to the Fed’s take on the economy, when it meets for a policy meeting next week.

EUR/USD for Friday, January 25, 2013

EUR/USD January 25 at 9:30 GMT

1.3433 H: 1.3442 L: 1.3287

EUR/USD Technical

EUR/USD has pushed across the 1.34 line, as the dollar continues to retreat. The pair is receiving weak support at the round number of 1.34. This is followed by support at 1.3350. On the upside, 1.3480 is a strong resistance line. This line has not been tested since February 2012.

Current range: 1.34 to 1.3480.

Further levels in both directions:

• Below: 1.34, 1.3350, 1.3280, 1.3240, 1.3170, 1.3130, 1.3080, 1.3030, 1.30 and 1.2960.
• Above: 1.3480, 1.3568 and 1.3627, 1.3797 and 1.3858.

OANDA’s Open Position Ratios

The euro has been making strong gains against the dollar, but this has not been reflected in the ratio, which is no showing any change. Given the volatility in EUR/USD at present,  the ratio could show some activity at any time. Trader sentiment continues to be strongly biased in favor of short positions, indicating an expectation that the dollar will show some improvement.

The euro has gained over a cent on the week against the dollar, and is pushing towards the mid-1.34 level. Solid German data and strong US employment numbers have boosted market sentiment as investors feel more comfortable moving away from the safe-haven greenback. Will the upward trend continue?  The euro is riding some strong momentum, and could post more gains if Friday’s US housing data is positive.

EUR/USD Fundamentals

• 9:00 German Ifo Business Climate. Estimate 103.1 points. Actual 104.2 points.
• 15:00 US New Home Sales. Estimate 387K.

*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.