EUR/USD – Slight Losses Despite Sharp Eurozone, German Data

EUR/USD has edged lower in Wednesday trading, dropping below the 1.36 line. In economic news, Eurozone Retail Sales jumped 1.5%, reversing directions after two consecutive declines. The Eurozone Unemployment Rate remained steady at 12.1%. German Factory Orders jumped sharply, while German Trade Balance improved, but fell short of the estimate. In the US, today’s highlight is the ADP Non-Farm Employment Change. The markets are expecting a lower reading for December. As well, the Federal Reserve will release the minutes of its most recent policy meeting.

The new year has not brought much cheer to the euro, as the common currency has lost close to two cents in the past week. Surprisingly, the currency hasn’t received a boost from recent Eurozone data, which has generally looked sharp. German and Eurozone retail sales jumped in December, and German Unemployment Change sparkled with a sharp drop. As well, recent Spanish numbers have impressed. At the same time, Italy and France are struggling, and inflation and growth in the Eurozone remain weak.

Germany started off 2014 with sharp numbers, as Retail Sales improved by 1.5%, reversing a downtrend of two straight declines. This beat the estimate of 0.5%. Unemployment Change was very sharp, declining by 15 thousand, the first decline in five months. On Wednesday, German Factory Orders jumped 2.1%, easily beating the estimate of 1.2%. Trade surplus widened to 17.8 billion euros, but this missed the estimate of 18.9 billion. The strong numbers we have seen in January are indicative of an improving German economy, which bodes well for the Eurozone.

Eurozone CPI posted a gain of 0.8% in December, a slight drop from the 0.9% reading a month earlier. This is well below the ECB inflation target of 2%. The central bank has responded with rate cuts which have lowered the benchmark rate to a record low of 0.25%, but inflation hasn’t risen as hoped. The ECB will meet and announce a rate decision on Thursday. With the benchmark rate so low, we could see the ECB take other monetary steps, such as negative deposit rates. Currently, these rates stand at 0.0%.

As expected, the US Senate confirmed Susan Yellen as chair of the Federal Reserve by a wide margin on Monday. Yellen becomes the first woman to head the powerful central bank. She has been a strong supporter of outgoing chair Bernard Bernanke, who lowered interest rates and implemented a QE program in order to boost a struggling US economy. The Fed has now started to trim the $85 billion QE scheme, with a $10 billion cut as of January. We could see another taper at the next Fed policy meeting in late January. Yellen takes over the helm on February 1, and will chair her first policy meeting in March.

EUR/USD for Wednesday, January 8, 2014

EUR/USD January 8 at 12:05 GMT

EUR/USD 1.3587 H: 1.3665 L: 1.3580

EUR/USD Technical

• EUR/USD has posted modest losses in Wednesday trading.
• 1.3585 is under strong pressure and could break if the euro continues to lose ground. This is followed by a stronger support line at the round number of 1.3500.
• The pair faces resistance at 1.3649. This line has some breathing room as the pair trades at lower levels. This is followed by resistance at 1.3786.
• Current range: 1.3585 to 1.3649

Further levels in both directions:

• Below: 1.3585, 1.3500, 1.3410 and 1.336
• Above: 1.3649, 1.3786, 1.3893, 1.4000 and 1.4140

OANDA’s Open Positions Ratio

EUR/USD ratio has reversed positions in Wednesday trading, pointing to gains in long positions. This is not consistent with what we are seeing from the pair, as the euro has edged lower against the dollar. The ratio is still made up largely of short positions, indicative of a trader bias towards the dollar continuing to gain ground.

The euro continues to lose ground in Wednesday trading. We could be in for some volatility in the North American session, as the US releases the ADP Non-Farm Payrolls and the Federal Reserve minutes later in the day.

EUR/USD Fundamentals

• 7:00 German Trade Balance. Estimate 18.9B. Actual 17.8B.
• 9:00 Italian Monthly Unemployment Rate. Estimate. 12.6%. Actual 12.7%.
• 10:00 Eurozone Retail Sales. Estimate 0.2%. Actual 1.4%.
• 10:00 Eurozone Unemployment Rate. Estimate 12.1%. Actual 12.1%.
• 11:00 German Factory Orders. Estimate 1.2%. Actual 2.1%.
• 13:15 ADP Non-Farm Employment Rate. Estimate 199K.
• 15:30 US Crude Oil Inventories. Estimate -1.6M.
• 18:01 US 10-year Bond Auction.
• 19:00 US FOMC Meeting Minutes.
• 20:00 US Consumer Credit. Estimate 14.8B.

*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.