EUR/USD – Euro Slides As Yellen To Head Federal Reserve Test

The US dollar has posted strong gains in Wednesday trading, as EUR/USD has dropped into the low-1.35 range in the European session. The dollar improved after reports that President Obama will nominate Federal Reserve Vice Chairwoman Janet Yellen to head the Federal Reserve early next year. In economic news, today’s highlight is the minutes from the Fed’s last policy meeting. In the Eurozone, German Industrial Production rebounded in September with a healthy gain of 1.4%. The US government shutdown continues, with little progress over the budget deadlock or the impending debt ceiling.

The dollar posted broad gains following media reports that President Obama will nominate Susan Yellen to replace Bernard Bernanke as chairman of the Federal Reserve. Bernanke is due to retire early in 2014, and Yellen, who serves as Fed vice-chairwoman, became the leading candidate after Lawrence Summers withdrew his candidacy. Yellen is considered dovish in stance and has supported Bernanke in three rounds of QE increases. Meanwhile, the markets will be paying close attention to the release of the FOMC minutes later today, looking for more clarity about the Fed’s position on QE tapering.

There was good news from Germany on Wednesday, as Industrial Production gained 1.4%, bouncing back from a decline of -1.1% in September. This beat the estimate of 1.1%. The strong reading came on the heels of a weak German Factory Orders release, which posted a second straight decline. Germany is the largest economy in the Eurozone, so German releases have a strong impact on market sentiment toward the Eurozone and solid data out of Germany bodes well for the euro.

The US shutdown has now entered its second week, and the Republicans and Democrats continue to play the blame game. Neither side is showing any flexibility, at least in front of the cameras. Polls show that most of the public blames the Republicans for the impasse, and this is likely increasing the pressure on the Republicans to agree to pass the budget so that the government can resume operating. The economic damage from the shutdown is not expected to be substantial, but the political fallout of this crisis will likely be significant.

As the shutdown drags on, Congress needs to deal urgently with another brewing crisis – the debt ceiling. The US has a debt worth $16.7 trillion, and will run out of funds to service the debt by October 17, unless Congress authorizes raising the debt ceiling. Otherwise, the US could potentially default on its obligations, which could cause chaos in the domestic and international markets. There is a lot of bad blood between the Republicans and Democrats over the shutdown, and this will undoubtedly complicate negotiations over the debt ceiling. With just a week to go until the debt ceiling is reached, the markets could get volatile if the politicians in Washington don’t get their act together quickly.

EUR/USD for Wednesday, October 9, 2013

EUR/USD 1.3527 H: 1.3601 L: 1.3516

EUR/USD Technical

• EUR/USD has posted sharp losses in Wednesday trading. The euro has been losing ground in both the Asian and European sessions.
• EUR/USD is facing resistance at 1.3585. This is followed by resistance at 1.3649, which has held firm since early February.
• The pair is putting strong pressure on the round number of 1.35. Will this key support line hold? This is followed by support at 1.3410.
• Current range: 1.3500 to 1.3585

Further levels in both directions:

• Below: 1.3500, 1.3410, 1.3335, 1.3162 and 1.3100
• Above: 1.3585, 1.3649, 1.3786, 1.3893 and 1.4000

OANDA’s Open Positions Ratio

EUR/USD ratio is pointing to movement towards long positions in Wednesday trading. This is not reflected in the current movement of the pair, as the US dollar has posted strong gains. The ratio continues to have a solid majority of short positions, indicative of a strong trader bias towards the US dollar continuing to rally.

EUR/USD has lost ground and is trading in the low-1.35 range. With the US releasing the minutes of the Fed’s most recent policy meeting, we could see some further movement from the pair during the North American session.

EUR/USD Fundamentals

• 10:00 German Industrial Production. Estimate 1.1%. Actual 1.4%.
• 14:00 US FOMC Member Charles Evans Speaks.
• 14:30 US Crude Oil Inventories. Estimate 0.9M.
• 17:01 US 10-year Bond Auction.
• 18:00 US FOMC Meeting Minutes.
• 19:00 President Obama Speaks. Obama is expected to nominate Susan Yellen to head the Federal Reserve.
• 22:00 ECB President Mario Draghi Speaks.

*Key releases are highlighted in bold

*All release times are GMT

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