EUR/USD – Muted Reaction to Bernanke’s Congressional Testimony

The euro has edged higher in Friday trading against the US dollar. In the European session, the pair is trading at the 1.31 line. The currency markets did not show much reaction to two days of testimony in Congress from US Fed chair Bernard Bernanke. Bernanke didn’t say anything new, as he stated that the Fed’s monetary policy would remain accommodative and QE tapering would not begin until the US economy showed further improvement. Bernanke may have been in the spotlight, but there were two excellent releases out of the US on Thursday. Unemployment Claims dropped and came in below the estimate, while the Philly Fed Manufacturing Index jumped to its highest level in over two years. Taking a look at Friday’s releases, German PPI beat the forecast. Spanish HPI will be released later in the day. Moscow is hosting a G20 meeting of finance ministers and central bankers. In the US, there are no releases on Friday.

There was plenty of anticipation ahead of US Federal Reserve chair Bernard Bernanke’s testimony in Washington on Wednesday and Thursday, but anyone looking for drama and excitement was sorely disappointed. What Bernanke served was essentially the same menu we’ve seen before with regard to QE. The Fed chief sounded extremely vague when he stated that the Fed bond-buying was “not on a preset course”, leaving the Fed plenty of wiggle room to scale down QE should it choose to do so. Bernanke reiterated that any decision to scale down QE would depend on improving economic conditions. He noted that present unemployment levels (7.6%) were “well above” normal levels, and was careful to stay away from presenting any time deadlines for scaling down QE. So, the message from the Fed to the markets seems to be that QE tapering is not on the table before the economy improves and unemployment falls.

German data continues to point in all directions, making it a tricky task to gauge the health of the German economy. On Friday, German PPI finally broke out a slide of four consecutive declines, posting a flat 0.0%. Earlier in the week, German ZEW Economic Sentiment, a key release, missed expectations. Last week, German Trade Balance and Industrial Production both missed their estimates. Germany may be in better shape than its struggling neighbors, but unless there’s substantial improvement in German numbers, the sputtering Eurozone economy will have a tough time recovering.

In Spain, a growing political crisis has made its way to the very top, potentially implicating Prime Minister Mariano Rajoy. The PM is accused of receiving illegal payments back in the 90’s, when he served as a minister. There have been calls for Rajoy’s resignation, but analysts have noted that resignations by Spanish political figures are rare, as it is not part of the Spanish political culture. Rajoy, who has denied any wrongdoing, has a strong majority in parliament and is not expected to step down.

EUR/USD for Friday, July 19, 2013

EUR/USD 1.3101 H: 1.3155 L: 1.3090

EUR/USD Technical

EUR/USD is unchanged in Friday trading. The pair is testing the 1.31 line, and we could see this important barrier fall if the euro loses ground. The next support level is at 1.3050. On the upside, the pair faces resistance at 1.3162. This is followed by stronger 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 is showing little change in Friday trading. This is consistent with what we are seeing from the pair, which is showing very little movement. A majority of the open positions are short, indicating that trader sentiment is biased towards the euro losing more ground against the dollar.

EUR/USD has not shown much reaction to the Bernanke testimony in Washington, and the pair continues to hug the 1.31 line. What’s next for the euro? With no data out of the US today, we could see the pair continue to trade quietly and call it a week.

EUR/USD Fundamentals

• 6:00 German PPI. Estimate 0.2%. Actual 0.0%.
• Tentative – Spanish HPI.
• Day 1 of G20 Meeting in Moscow.

*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.