EUR/USD – Markets Eye Speeches from Draghi, Obama

EUR/USD continues to trade quietly, in contrast to last week’s fireworks. The pair is testing the 1.34 level, as it tries to recuperate from sharp losses late last week. With little happening as far as economic releases in both Europe and the US, Tuesday’s highlight will be a speech by ECB head Mario Draghi, who will address the Spanish Parliament in Madrid. In the US, the major release is the Federal Budget Balance.

The markets will be paying close attention as ECB head Mario Draghi pays a visit to Spain, in which he will address the Spanish Parliament. Draghi has been in the spotlight quite a bit in 2013. In January, the euro rallied after Draghi expressed optimism about the Eurozone economy. Speaking after the ECB rate announcement last week, Draghi once again lit a fire under the currency, only this time in the opposite direction. Draghi warned that the high-flying euro was affecting prices and economic growth in the Eurozone. He stated that the exchange rate was not a policy target, but the ECB would “closely monitor money market developments”. The result? The euro plunged, losing over a cent. We’re unlikely to get such a dramatic response from the currency markets this time around, but the markets will be listening closely to what Draghi has to say.

There was an important development at the recent EU meeting in Brussels. After marathon negotiations, EU leaders hammered out a deal to cut the EU budget, for the first time in the bloc’s history. The seven-year budget will be trimmed from 994 billion euros to 960 billion. The cuts are modest in scale, but nonetheless an important step in reigning in spending. The deal is a hard-fought compromise, as it reduces the budget while providing more funds for agricultural aid. Although all EU leaders have signed off on the agreement, it must be approved by the European Parliament, which is by no means certain. European Parliament head Martin Schulz has already stated that the budget will not pass in its current format, so we could see further developments in this matter.

 The markets are also keeping an eye on Moscow, which hosts the G-20 meeting later this week. An important topic on the agenda will be the issue of exchange rates. There has been a lot of volatility in currency rates lately – most notably, the sinking yen and the high-flying euro. There is mounting concern about currency wars, as countries increasingly rely on monetary policy to kick-start their flagging economies. The Japanese yen has shed 20% of its value since October, as the government continues with aggressive monetary stimulus to combat deflation and breathe life into the sluggish Japanese economy. ECB head Mario Draghi has said that he hasn’t seen deliberate devaluations in order to improve competitiveness, but said the ECB was carefully monitoring whether exchange rates were affecting inflation in the Eurozone. The Institute of International Finance, which is comprised of leading banks and financial institutions, has urged the G-20 to take steps to avoid the “possible discord on exchange rates”. However, given the need to reach a consensus, analysts expect any statement on currencies from the G-20 to be mild in nature.

EUR/USD for Tuesday, February 12, 2013

EUR/USD February 12 at 10:05 GMT

1.3382 H: 1.3410 L: 1.3365

EUR/USD Technical

EUR/USD continues to trade quietly, hovering around 1.3380. The proximate support and resistance lines remain in place (S1 and R1 above). On the resistance side, the pair continues to put pressure on 1.34, and this major line could face more activity during the day. This is followed by strong resistance at 1.3480. On the downside, there is support at 1.3350. The next support line is 1.3280.

Current range: 1.3350 to 1.34.

Further levels in both directions:

• Below: 1.3350, 1.3280, 1.3240 and 1.3170
• Above: 1.34, 1.3480, 1.3627, 1.3690, 1.3745, 1.3796 and 1.3858

OANDA’s Open Position Ratios

The movement we saw on Monday in the EUR/USD ratio has dropped off, with little activity to report so far in Tuesday trading. This lack of movement is reflected in the currency pair, which is also showing subdued movement. The ratio remains with a majority of short open positions, indicating a slight bias in trader sentiment to the euro continuing to lose ground against the US dollar.

EUR/USD has taken a breather from last week’s volatility, and is currently testing the 1.34 line. With no key releases on Tuesday, today’s major event will be Mario Draghi’s speech to the Spanish Parliament. Barring any surprises from the ECB head, we can expect more drifting from EUR/USD.

EUR/USD Fundamentals

• All Day: Eurozone ECOFIN Meetings.
• 12:30 US NFIB Small Business Index. Estimate. 89.0 points.
• 14:30 ECB President Mario Draghi Speaks. Draghi will address the Spanish Parliament.
• 16:30 FOMC Member Esther George Speaks.
• 19:00 US Federal Budget. Estimate -4.6B.

*Key releases are highlighted in bold

*All release times are GMT

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