EUR/USD – Euro Hugging 1.30 Line in Quiet Trading

EUR/USD took the markets on a roller-coaster ride late last week, but has settled down and is trading close to the 1.30 level in Monday trading. The euro enjoyed a nice rally last week, climbing close to two cents against the US dollar. Monday is a quiet day, with only three releases out of Europe and the US. In the Eurozone Sentix Investor Confidence started the week on a sour note, dropping to a five-month low. In the US, Federal Reserve head Bernard Bernanke will address the Federal Reserve Bank of Atlanta.

Although the Cyprus bailout crisis has not been resolved and Mario Draghi basically acknowledged that that the Eurozone economy is in deep trouble, the euro made substantial gains against the greenback last week. Clearly, it wasn’t domestic developments aiding the continental currency. Rather, the euro was boosted by continuing weak US numbers, notably weak US employment data late last week. However, the euro continues to be weighed by weak numbers throughout the zone, and will find it tough to push higher if Eurozone numbers don’t improve. Last week’s numbers didn’t look good as PMI numbers out of Spain, Italy and the Eurozone indicate continuing weakness in the services and manufacturing industries. The employment situation is nothing short of alarming as the Unemployment Rate in the Eurozone edged up to a record high of 12.0%, and rates in Greece and Spain remain around 25%.

The drama and uncertainty in Cyprus, one of the Eurozone’s smallest members, continues, even though a bailout plan has been accepted by all sides. Strict capital controls are still in place in Cyprus in order to prevent a run on the banks. Under the bailout agreement, bank deposits below EUR100,000 are safe, but larger accounts with the Bank of Cyprus will be facing a haircut of up to 60%. An amount of 37.5% of these deposits will be converted into bank shares, and up to 22.5% more could be grabbed in order to prop up the Bank of Cyprus’ reserves. This steep tax is expected to have a strong negative impact on the country’s business sector, and the government has admitted that the country is in recession. In order to help the ailing economy, the government plans to lift a ban on casinos and provide tax exemptions on business profits that are reinvested on the island. President Nicos Anastasiades has acknowledged that the bailout agreement is a bitter pill for Cypriots, but said that refusing the agreement would have meant the collapse of the banking sector and could have led to Cyprus’ exit from the Eurozone. In a dramatic development, Cyprus finance minister Michael Sarris resigned. His resignation comes as Cyprus initiates a formal investigation to examine the events which lead to the EUR10 billion bailout.

In the US, talk of a deepening recovery is being replaced by concerns about the direction the economy, as the US continues to post out dismal numbers. With every major release over the past two weeks failing to meet expectations, the markets are justifiably becoming increasingly anxious. The data comes from sectors throughout the economy – housing, manufacturing consumer confidence and employment releases have all missed their estimates. On Friday, Non-Farm Payrolls followed the string of dismal releases, posting its worst showing since July 2012. There were 88 thousand new jobs created, way below the estimate of 198 thousand. Will we see a turnaround in this week’s numbers? If not, we could see some volatility in the currency markets.

EUR/USD for Monday, April 8, 2013

1.3012 H: 1.3018 L: 1.2969

EUR/USD Technical

EUR/USD traded in the 1.2990 range in the Asian session, and is testing the 1.30 level in European trading. Currently, this line is providing weak resistance. This is followed by 1.3030. On the downside, 1.2960 is providing support to the pair. The next support level is 1.2835.

Current range: 1.2960 to 1.3000

Further levels in both directions:

• Below: 1.2960, 1.2835 and 1.2805, 1.2745  and 1.2689
• Above: 1.30, 1.3030, 1.31, 1.3170, 1.3240, 1.3350, 1.34

OANDA’s Open Position Ratios

The EUR/USD ratio is pointing to movement towards short positions, as we begin the new trading week. Currently, the pair is showing little movement, as it stays close to the 1.30 line. The ratio continues to be closely split, indicating that trader sentiment is divided as to what direction we can expect from EUR/USD.

After some sharp fluctuations late last week, EUR/USD is trading quietly. With little going on to start the week as far as fundamental releases, the pair could continue to trade quietly on Monday.

EUR/USD Fundamentals

• 8:30 Eurozone Sentix Investor Confidence. Estimate -12.6 points. Actual -17.3 points.
• 10:00 German Industrial Production. Estimate 0.4%.
• 11:15 US Fed Chairman Bernard Bernanke Speaks.

*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.