EUR/USD – Euro Starts Off Week With Modest Gains

It’s a quiet start to a new trading week, as EUR/USD trades in the mid-1.31 range in Monday’s European session. The market reaction to US Fed chair Bernard Bernanke’s testimony last week in Washington was quite restrained, and had little impact on EUR/USD. Bernanke did not bring anything new to the table, as he repeated that the Federal Reserve’s monetary policy would remain accommodative. As for the hot issue of QE tapering Bernanke reiterated that the Fed could take action in 2013, but not before the US economy strengthened and unemployment dropped. The G20 meeting wrapped up in Moscow on the weekend, and the G20 promised that any changes in monetary policy would be done in a careful way. Taking a look at economic releases, it’s a slow start to the week, with just one release on Monday’s schedule – US Existing Home Sales. There are no Eurozone releases on Monday.

In Moscow, finance ministers and central bankers wrapped up a G20 meeting on Saturday. The delegates pledged that future changes to monetary policy would be “carefully calibrated and clearly communicated”. This is likely a hint to the recent market turmoil in response to statements from the Federal Reserve regarding possible QE tapering. The Fed has not always sounded consistent, and predictably, the resulting uncertainty has rattled the markets. Leaders of the G20 will meet in St. Petersburg in September, and a final draft statement from the Moscow meeting noted that a plan to increase jobs and growth and rebalance debt would be ready for the September meeting.

US Federal Reserve chair Bernard Bernanke had the stage to himself on Wednesday and Thursday, as he testified before Congress. However, Bernanke did not add anything we haven’t heard before, and his testimony was not a market-mover by any means. Bernanke reiterated that the Fed’s monetary policy would remain accommodative, and added that the Fed’s bond-buying program was “not on a preset course”. This vague statement leaves 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 US unemployment levels (7.6%) were “well above” normal levels, and was careful to stay away from presenting any specific 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.

Overshadowed by the Bernanke testimony last week were a couple of solid US releases on Thursday. Unemployment Claims fell sharply from 360 thousand to 334 thousand, well below the estimate of 344 thousand. On the manufacturing front, the Philly Fed Manufacturing Index surged, rising from 12.5 to 19.8 points. This was its best showing since March 2011, and easily surpassed the estimate of 8.5 points. If this week’s US key releases can continue the upward move, the US dollar could post gains against its major rivals.

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. Meanwhile, the government has its hands full with a weak Spanish economy. The news was not good on Friday, as Spanish HPI posted another sharp decline, as the July release posted a sharp decline of -2.4%. The last time this housing inflation index posted a gain was back in 2008, indicative of a housing industry in deep trouble.

EUR/USD for Monday, July 22, 2013

EUR/USD 1.3183 H: 1.3192 L: 1.3144

EUR/USD Technical

EUR/USD has edged higher in Monday trading. The pair is receiving support at 1.3162. This is a weak line which saw action in the European session. The next support level is at the round number of 1.3100. On the upside, the pair faces resistance at 1.3275. This is followed by a resistance line at 1.3400.

• Current range: 1.3162 to 1.3275

Further levels in both directions:

• Below: 1.3162, 1.3100, 1.3050, 1.3000, 1.2943, 1.2844 and 1.2751
• Above: 1.3275, 1.34, 1.3476 and 1.3585

OANDA’s Open Positions Ratio

EUR/USD ratio is pointing to movements towards short positions in Monday trading. This is not currently reflected in the pair, as the euro has posted modest gains against the US currency. A majority of the open positions are short, indicating that trader sentiment is biased towards the euro reversing direction and losing ground.

The euro has started out the week on a positive note, as the currency edges close to the 1.32 line. Will the pair push over this barrier? Monday’s sole release is US Existing Home Sales, but this key event could affect EUR/USD if the reading is not in line with market expectations.

EUR/USD Fundamentals

14:00 US Existing Home Sales. Estimate 5.27M

*Key releases are highlighted in bold

*All release times are GMT

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