EUR/USD – Euro Weakens As Fed Tapers Again

EUR/USD has posted losses in Thursday trading, as the pair trades at the 1.36 line in the European session. In economic news, the US Federal Reserve announced another $10 billion reduction in its QE program. Taking a look at events on Thursday, German Unemployment Change sparkled, posting its sharpest drop in almost three years. Spanish GDP continues to improve and matched the estimate. In the US, it’s a busy day with three major releases on the schedule – Advance GDP, Unemployment Claims and Pending Home Sales.

Most analysts had predicted that the Federal Reserve would go ahead and reduce QE for a second straight month, and that’s exactly what transpired on Wednesday. In a policy statement, the Federal Reserve reduced its stimulus program by another $10 billion, lowering QE to $65 billion each month. Fed chair Bernard Bernanke has indicated that the Fed plans to wind up QE by the end of the year, so we can expect further tapers, barring any surprise downturns in the US economy. Wednesday’s policy meeting was Bernard Bernanke’s last hurrah, as Janet Yellen takes over the reins as the Fed chair on February 1.

The German locomotive continues to pick up speed, much to the delight (and relief) of the markets. This time it was German Unemployment Change, which sparkled in December with a drop of 28 thousand, crushing the estimate of a drop of 5 thousand. This was the indicator’s best showing since March 2011. The Unemployment Rate stayed pegged at 6.8%. Earlier in the week, Consumer Climate and Ifo Business Climate rose, indicating that German businesses and consumers are optimistic about the economy as we begin 2014. Germany is the Eurozone’s largest economy, and the region will need the country to lead the way to an economic recovery on the continent.

US manufacturing numbers were sluggish in December. Core Durable Goods Orders posted another decline, its sixth in seven readings. The key manufacturing release fell 1.6%, well short of the estimate of a 0.7% gain. It was the indicator’s sharpest drop since August 2012. There was no relief from Durable Goods Orders, which plunged 4.3%, nowhere near the estimate of a 1.9% gain. CB Consumer Confidence looked much sharper, climbing to 80.7 points, up from 78.1 a month earlier. The estimate stood at 78.3 points.

Eurozone inflation indicators continue to point to weak inflation, and the situation as deteriorated to such an extent that the IMF has voiced its concern about the danger of deflation in Europe, which would hurt any moves towards stronger growth. The danger of deflation was noted in a report published by the organization as well as in a speech by IMF Managing Director Christine Lagarde at the World Economic Forum in Davos. With interest rates at a record low 0.25%, the ECB may have to consider reducing deposit rates below zero at its next policy meeting in order to push inflation indicators higher.

 

EUR/USD for Thursday, January 30, 2014

Forex Rate Graph 21/1/13

EUR/USD January 30 at 12:10 GMT

EUR/USD 1.3601 H: 1.3662 L: 1.3586

 

EUR/USD Technical

S3 S2 S1 R1 R2 R3
1.3347 1.3410 1.3585 1.3649 1.3786 1.3893

 

  • EUR/USD is not showing much activity in Thursday trading.
  • 1.3649 has switched to a support role. This is not a strong line and could face pressure during the day. This is followed by support at 1.3585.
  • 1.3786 is providing strong resistance. This is followed by a resistance line at 1.3893, which is protecting the 1.39 line.
  • Current range: 1.3649 to 1.3786

Further levels in both directions:

  • Below: 1.3585, 1.3410, 1.3347 and 1.3267
  • Above: 1.3649, 1.3786, 1.3893, 1.4000 and 1.4153

 

OANDA’s Open Positions Ratio

EUR/USD ratio is pointing to movement towards long positions in Thursday trading, continuing the trend we saw a day earlier. This is not reflected in the pair’s current movement, as the euro has posted losses against the dollar. Most of the open positions in the ratio are short, indicative of trader bias towards the dollar continuing to move higher against the euro.

The euro has posted losses on Thursday and could be headed for 1.36 territory. We could see some strong movement from the pair during the North American session, as the US releases three key events, highlighted by Unemployment Claims.

 

EUR/USD Fundamentals

  • All Day – German Preliminary CPI . Estimate -0.4%.
  • 8:00 Spanish Flash GDP. Estimate 0.3%. Actual 0.3%.
  • 8:55 German Unemployment Change. Estimate -5K. Actual -28K.
  • 10:16 Italian 10-year Bond Auction. Actual 3.81%.
  • 13:30 US Advance GDP. Estimate 3.3%.
  • 13:30 US Unemployment Claims. Estimate 331K.
  • 13:30 US Advance GDP Price Index. Estimate 1.2%.
  • 15:00 US Pending Home Sales. Estimate -0.1%.
  • 15:30 US Natural Gas Storage. Estimate -225B.

 

*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.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.