EUR/USD – Euro Pointing Downward as Fed Fallout Fades

The euro remains under pressure as we greet another trading week. In Monday’s European session, EUR/USD is trading quietly in the 1.3030 range. The euro posted sharp gains on Wednesday, but has since lost some ground after the Federal Reserve cooled off expectations that it was poised to scale back QE. On Friday, there was mixed data out of the US. PPI hit a nine-month high, but UoM Consumer Sentiment fell short of expectations. Taking a look at Monday’s events, there are no releases out of the Eurozone today. In the US, the markets will have to key releases to comb through – Retail Sales and Core Retail Sales. 

The euro has  been struggling, but owned the dollar last week, as the continental currency shot higher last week and gained about 250 points on the week. The euro took advantage as the dollar took a hit following the release of the minutes from the Fed’s last policy meeting, as well as dovish remarks from Fed chair Bernard Bernanke. The minutes indicated that Federal Reserve policymakers remain deeply divided over when to scale down the current round of QE, whereby the Fed purchases $85 billion in assets each month. About half of the Fed policymakers favor scaling down QE before the end of 2013, while others feel that the employment market is still too fragile for the Federal Reserve to take any action. The dollar continued to lose ground as Federal Reserve chair Bernanke gave a speech in which he said that the Fed would maintain a loose monetary policy for the foreseeable future, due to low levels of inflation and a high US unemployment rate. The dollar has recovered about one cent since sustain those heavy losses.

The US ended the week on a mixed note. UoM Consumer Sentiment disappointed as it missed expectations. The key indicator improved in June to 83.9 points from 82.7, but this fell well short of the estimate of 85.3 points. However, the markets appeared to focus on the fact that the indicator posted a respectable gain and remains at high levels, so the dollar was not hurt. PPI, an important inflation index, looked strong as it jumped from 0.5% to 0.8%. The estimate stood at 0.5%, and this was the best showing since October 2012.

Almost forgotten in all the excitement stirred up by the Federal Reserve last week was the release of the ECB Monthly Bulletin on Thursday. The ECB said it would maintain low rates and could even lower them if economic conditions warranted such a move. The ECB said it remained flexible, and that inflation would be a key factor in future decisions. ECB policymaker Jens Weidmann echoed these sentiments, saying that the ECB’s monetary policy depended on the state of the Eurozone economy. Low ECB rates are bearish for the euro, as many investors could end up parking their funds elsewhere if the rates are more attractive than in the Eurozone.

EUR/USD for Monday, July 15, 2013

EUR/USD 1.3027 H: 1.3079 L: 1.3020

EUR/USD Technical

EUR/USD continues to post modest losses since Wednesday’s huge gains. The pair is putting pressure on the important 1.30 line, which is the next support level. This line could fall if the dollar continues to improve. Next, we find support at 1.2943. On the upside, 1.3050 is a weak line and has already seen action on Monday. This is not a strong line, and could face more action, given the volatility we are seeing from the pair. This is followed by resistance at the round number of 1.3100.

• Current range: 1.3000 to 1.3050

Further levels in both directions:

• Below: 1.3000, 1.2943, 1.2844, 1.2751 and 1.2696
• Above: 1.3050, 1.3100, 1.3162, 1.3275 and 1.34.

OANDA’s Open Positions Ratio

The EUR/USD ratio continues to point to movement towards short positions on Monday trading. This is consistent with what we are seeing from the pair, as the euro is down slightly at the start of the week.

The dollar continues to chip away at the euro, and the significant round number of 1.30 is within striking distance. Will the pair push lower and test this level? We have two key releases out of the US later on Monday, so we could see some volatility from EUR/USD if the readings are not in line with market expectations.

EUR/USD Fundamentals

• 12:00 US FOMC Daniel Tarullo Speaks.
• 12:30 US Core Retail Sales. Estimate 0.5%.
• 12:30 US Retail Sales. Estimate 0.7%.
• 12:30 US Empire State Manufacturing Index. Estimate 5.2 points.
• 14:00 US Business Inventories. Estimate 0.2%.

*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.