EUR/USD- Euro Posts Gains Despite Weak German Data

The euro has posted gains in Tuesday trading, as the pair has pushed above the 1.31 line in the European session. There are numerous releases out of both the Eurozone and the US on Tuesday, so the markets will be busy reviewing all these numbers. In the Eurozone, German ZEW Economic Sentiment dropped in June and came in well below the estimate. There was better news from the Eurozone ZEW Economic Sentiment, which climbed to a four-month high. Eurozone inflation data matched the forecast, and Italian and Eurozone Trade Balance beat their estimates. In the US, Tuesday’s major event is Core CPI.

German ZEW Economic Sentiment was released earlier on Tuesday, and the key indicator did not impress, falling from 38.5 points to 36.3. This was well short of the estimate of 39.8 points. This indicator points to weaker confidence in the German economy on the part of institutional investors and analysts, and will increase market concern about the health of the German economy. There was better news from the Eurozone ZEW Economic Sentiment, which jumped from 30.6 points to 32.8, pushing above the estimate of 31.8 points. It marked the third straight month that the indicator has beaten the market forecast.

The euro posted huge gains last Wednesday, 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. If US employment numbers show further improvement, the Federal Reserve will again be under pressure to taper QE. With Bernanke scheduled to testify on Wednesday before a congressional committee, we could see some further volatility in the currency markets.

Almost forgotten in all the excitement stirred up by the Federal Reserve last week was the release of the ECB Monthly Bulletin late last week. 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 Tuesday, July 16, 2013

EUR/USD 1.3114 H: 1.3131 L: 1.3052

EUR/USD Technical

EUR/USD has moved higher in Tuesday trading. The pair is receiving support at the round number of 1.31. This is a weak line, and could be tested during the day. The next support level is at 1.3050. On the upside, the pair faces resistance at 1.3162. This is followed by resistance at 1.3275.

• Current range: 1.3100 to 1.3162

Further levels in both directions:

• Below: 1.3100, 1.3050, 1.3000, 1.2943, 1.2844 and 1.2751
• Above: 1.3162, 1.3275, 1.34 and 1.3476

OANDA’s Open Positions Ratio

On Tuesday, the EUR/USD ratio continues to show movement towards short positions, continuing the trend we saw on Monday. This is not reflected in the pair’s current movement, as the euro has pushed higher against the dollar.

The euro is showing some strength, and is trading above the 1.31 line. Will the upward movement continue? With the US releasing key inflation data later in the day, we could see some volatility from EUR/USD.

EUR/USD Fundamentals

•  8:00 Italian Trade Balance. Estimate 2.14B. Actual 3.90B.
• 9:00 German ZEW Economic Sentiment. Estimate 39.8 points. Actual 36.3 points.
• 9:00 Eurozone ZEW Economic Sentiment. Estimate 31.8 points. Actual 32.3 points.
• 9:00 Eurozone CPI. Estimate 1.6%. Actual 1.6%.
• 9:00 Eurozone Core CPI. Estimate 1.2%. Actual 1.2%.
• 9:00 Eurozone Trade Balance. Estimate 15.8B. Actual 14.6B.
• 12:30 US Core CPI. Estimate 0.2%.
• 12:30 US CPI. Estimate 0.3%.
• 13:00 US TIC Long-Term Purchases. Estimate 14.3B.
• 13:15 US Capacity Utilization Rate. Estimate 77.8%.
• 13:15 US Industrial Production. Estimate 0.2%.
• 14:00 US NAHB Housing Market Index. Estimate 51 points.
• 18:15 US FOMC Member Esther George Speaks.

*Key releases are highlighted in bold

*All release times are GMT

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