The euro has climbed sharply against the US dollar in Thursday trading, gaining about 100 points so far. In Thursday’s European session, the pair is trading in the low-1.36 range. With the debt ceiling set to hit on Thursday, the Senate and House of Representatives voted on Wednesday to fund the government and raise the debt ceiling. In economic news, Eurozone Current Account improved, but fell short of the estimate. In the US, there are two major releases on the schedule – Unemployment Claims and the Philly Fed Manufacturing Index.
With the US staring at a sovereign default for the first time in its history, the Republicans and Democrats finally reached as deal in Congress on Wednesday to reopen the government and raise the debt ceiling. The agreement passed by wide margins in both the Senate and House. However, the deal provides short-term relief only – the government will be funded until January 15, while
the debt limit will be raised until February 7. Both sides agreed to discuss budget issues and try to reach a long-term agreement before December 13. The Republicans appear to be the big losers in this sorry tale, as they failed to obtain any concessions regarding the Obama Health Care Act and are blamed by most of the public for precipitating an unnecessary political and fiscal crisis.
After weeks of bitter partisanship and political brinkmanship, Congress finally got its act together and voted to fund the government and raise the debt ceiling. The shutdown, which lasted for over two weeks and temporarily threw hundreds of thousand of federal employees out of work, is estimated to have cost the economy $24 billion. The cost of the debt crisis is harder to quantify, but has certainly eroded faith in the US economy and perhaps in the US dollar as well. This was underscored by a warning from Fitch Ratings on Tuesday, when the agency put US debt on a negative watch. Fitch stated that the crisis had cast doubt over the credit of the United States and had undermined confidence “in the role of the US dollar as the pre-eminent global reserve currency”.
With the market’s attention on the crisis in Washington, US economic releases, even major events, have been shunted to the backburners. However, Thursday’s US Unemployment Claims is a key release that could affect the US dollar. With major releases such as Non-Farm Payrolls suspended to the US shutdown, Unemployment Claims has magnified in its importance. Last week’s release was not considered accurate due to technical problems, so this week’s numbers are being eagerly awaited. The markets are bracing for another weak release, with an estimate of 357 thousand.
In the Eurozone, inflation indicators continue to point to weak inflation in the region. Eurozone CPI dropped from 1.3% to 1.1% in September, while Eurozone Core CPI edged lower, from 1.1% to 1.0%. Both readings matched the estimate. The inflation numbers point to weakening economic activity and continue to be a source of concern for Eurozone policymakers. Meanwhile, German Chancellor Angela Merkel may have rolled to an easy victory in last month’s elections, but that has proven to be much easier than forming a government. Merkel continues to have difficulty forming a coalition, as talks with the Greens party have broken off. This leaves the Social Democrats as her sole potential partner and the negotiations are expected to be protracted and difficult.
EUR/USD for Thursday, October 17, 2013
EUR/USD October 17 at 9:50 GMT
EUR/USD 1.3621 H: 1.3628 L: 1.3516
- EUR/USD has posted sharp gains in Thursday trading. The pair barreled past the 1.36 line early in the European session and continues to push upwards.
- The pair continues is facing resistance at 1.3649. This line has weakened and could be tested if the euro continues to push higher. This is followed by resistance at 1.3786, which has held firm since November 2011.
- EUR/USD is receiving weak support at 1.3585. This is followed by stronger support at the round number of 1.3500.
- Current range: 1.3500 to 1.3585
Further levels in both directions:
- Below: 1.3585, 1.3500, 1.3410, 1.3335 and 1.3162
- Above: 1.3649, 1.3786, 1.3893 and 1.4000
OANDA’s Open Positions Ratio
EUR/USD ratio indicates a strong shift towards short positions on Thursday. This can be explained by the euro’s sharp climb, which has led to the covering of numerous long positions, thus increasing the percentage of open short positions. The ratio continues to be dominated by short positions, indicating a strong trader bias towards the US dollar posting gains against the euro.
EUR/USD has posted sharp gains on Thursday, following the agreement in Congress to reopen the government and avert the debt ceiling. We could see further movement from the pair during the day, as the US releases key employment and manufacturing data.
- 8:00 Eurozone Current Account. Estimate 17.7B. Actual 17.4B.
- 12:30 US Unemployment Claims. Estimate 357K.
- 14:00 US Philly Fed Manufacturing Index. Estimate 15.4 points.
- 16:45 US FOMC Member Charles Evans Speaks.
- 16:45 US FOMC Member Esther George Speaks.
*Key releases are highlighted in bold
*All release times are GMT