EUR/USD – Steady Ahead of Bernanke Testimony in Congress

EUR/USD is very quiet in Wednesday trading, in sharp contrast to Tuesday, when the pair jumped over 100 points. In the European session, EUR/USD is trading in the mid-1.31 range in the European session. On Tuesday, US inflation numbers were positive, as Core CPI matched the forecast, while CPI came in higher than the forecast. German ZEW Economic Sentiment disappointed, but Eurozone Economic Sentiment posted a four-month gain. On Wednesday, all eyes will be on Washington, as Federal Reserve head Bernard Bernanke testifies before a congressional committee. As well, the US will release Building Permits, a major event. In the Eurozone, the only release was the yield on 10-year German bonds, which were virtually unchanged from the previous release.

Once again the Federal Reserve will be in the spotlight, as Fed chief Bernard Bernanke testifies on Wednesday before a congressional committee in Washington. Bernanke will present the Fed’s Semiannual Monetary Policy Report, and the markets will be looking closely for any hints about QE tapering. The markets posted huge moves last week, after the release of the Fed’s policy minutes and dovish comments from Bernanke. The minutes pointed to a split amongst Fed policymakers whether to tighten QE sometime in 2013 or wait until the labor market improves. This was followed by speech by Bernanke, 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 took a sharp hit following these developments. The markets will be looking for some guidance from Bernanke’s testimony, and if he hints at a timeline for QE tapering, we could see some volatility in the currency markets.

The euro posted sharp gains on Tuesday, although Eurozone economic confidence numbers were mixed. In Germany, ZEW Economic Sentiment, a key event, fell from 38.5 points to 36.3, well off the estimate of 39.8 points. Eurozone ZEW Economic Sentiment fared much better, climbing from 30.6 points to 32.8 points. This beat the estimate of 31.8 points. German data continues to concern the markets, as the largest economy in the Eurozone has posted mixed releases recently, and the Eurozone economy will have little chance of recovering if Germany does not lead the way.

Almost forgotten in all the excitement stirred up by the Federal Reserve 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 Wednesday, July 17, 2013

EUR/USD 1.3151 H: 1.3166 L: 1.3122

EUR/USD Technical

EUR/USD has shown little change in Wednesday trading, as the proximate support and resistance lines remain intact (S1 and R1 above). The pair continues to receive support at the round number of 1.31. This line has strengthened as the pair posted sharp gains on Tuesday. The next support level is at 1.3050. On the upside, the pair faces resistance at 1.3162. This line has weakened, and could be tested if the euro can push higher. 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

EUR/USD ratio continues to show movement towards short positions, following the trend we have seen all week. This is not reflected in the pair’s current movement, as the pair has quieted down on Wednesday after sharp gains the day before.

The euro is trading quietly in the mid-1.31 range. We could see some activity from the pair later in the day, as Fed chief Bernanke testifies in Washington. As well, the US will release Building Permits, a key event.

EUR/USD Fundamentals

• 9:32 German 10-year Bond Auction. Actual 1.57%.
• 12:30 US Building Permits. Estimate 1.00M.
• 12:30 US Housing Starts. Estimate 0.96M.
• 14:00 US Fed Chairman Bernard Bernanke testifies before the House Financial Services Committee in Washington.
• 14:30 US Crude Oil Inventories. Estimate -1.9M.
• 16:30 US Federal Reserve Governor Sarah Bloom Raskin Speaks.
• 18:00 US Beige Book.

*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.