EUR/USD – Steady As Eurozone CPI Hits Estimate

EUR/USD is showing little movement in Thursday trading, posting modest gains. The pair is trading at the 1.36 line in the European session. In economic news, Eurozone CPI posted a gain of 0.8%, matching the estimate. Core CPI gained 0.7%, missing its estimate. In the US, there are three key events on the schedule – Core CPI, Unemployment Claims and the Philly Fed Manufacturing Index. As well, Fed chair Bernard Bernanke will deliver a speech in Washington.

Weak inflation levels in the US remain a concern, as this is an indication of an underperforming economy. On Tuesday, the Producer Price Index posted a gain of 0.4%, reversing directions after three consecutive declines.  On Wednesday, Chicago Fed President Charles Evans said that the low rate of U.S. inflation is “both puzzling and worrisome,” and enough reason to maintain low interest rates, even if the employment picture continues to brighten. We’ll get another look at inflation indicators on Thursday, as the US releases Core CPI and CPI.

There was good news out of the Eurozone on Tuesday as Industrial Production looked sharp. The key manufacturing indicator bounced back from a decline of 1.1% in November, posting an excellent gain of 1.8% in December, a multi-year high. This beat the estimate of 1.6%. Meanwhile, the first ECB rate announcement of 2014 was a non-event last week, as the central bank held the benchmark rate at a record low of 0.25%, as expected. ECB president Mario Draghi said that monetary policy will remain accommodative for as long as is needed to help the Eurozone economy recover, and that interest rates will likely remain at present or lower levels for the foreseeable future. If growth and inflation indicators continue to look weak, the ECB may have to take action at its next meeting in February.

Last week’s disappointing Non-Farm Payrolls report may have created some concern in the markets, but is unlikely to change the Federal Reserve’s path of tapering QE, which it started just this month. In December, outgoing Fed chair Bernard Bernanke strong hinted that the Fed planned to wind up QE by the end of 2014, reducing the asset-purchase program by increments of $10 billion at each Fed policy meeting. The Fed will hold its next policy meeting on January 28, and the question is will the Fed reduce QE by another $10 billion, down to $65 billion each month. Most analysts feel that one bad employment report will not affect the taper schedule and the Fed will continue to scale down QE at the next meeting.

EUR/USD for Thursday, January 16, 2014

EUR/USD January 16 at 12:50 GMT

EUR/USD 1.3602 H: 1.3628 L: 1.3586

EUR/USD Technical

• EUR/USD is steady in Thursday trading, as the proximate support and resistance lines (S1 and R1 above) remain in place. The pair dropped to a low of 1.3597 early in the European session.
• 1.3649 is providing resistance. This is followed by a stronger resistance line at 1.3786.
• The pair is receiving support at 1.3585. This line could face strong pressure if the euro loses any ground. The next support line is at the round number of 1.3500.
• 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 continues to point to gains in long positions in Thursday trading. This is consistent with what we are seeing from the pair, as the euro has posted small gains against the dollar. The ratio is made up largely of short positions, indicative of a trader bias towards the dollar moving to higher levels.

The euro is steady in Thursday trading. With the US releases a number of key indicators later on, highlighted by Unemployment Claims, we could see some volatility in the North American session.

EUR/USD Fundamentals

• 7:00 German Final CPI. Exp. 0.4%. Actual 0.4%.
• 9:00 ECB Monthly Bulletin.
• 9:00 Italian Trade Balance. Estimate 3.88B. Actual 3.09B.
• 10:00 Eurozone CPI. Estimate 0.8%. Actual 0.8%.
• 10:00 Eurozone Core CPI. Estimate. 0.9%. Actual 0.7%.
• 10:00 German Buba President Weidmann Speaks.
• 13:30 US Core CPI. Estimate 0.1%.
• 13:30 US CPI. Estimate 0.3%.
• 13:30 US Unemployment Claims. Estimate 327K.
• 13:30 US Treasury Secretary Jack Lew Speaks.
• 14:00 US TIC Long-Term Purchases. Estimate 42.3B.
• 15:00 US Philly Fed Manufacturing Index. Estimate 8.8 points.
• 15:00 NAHB Housing Market Index. Estimate 58 points.
• 15:30 US Natural Gas Storage. Exp. -296B.
• 16:10 US Fed Chair Bernard Bernanke Speaks.

*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.