EUR/USD – Euro Higher As Markets Eye Unemployment Claims

EUR/USD has jumped on Thursday, rising close to one cent and wiping out Wednesday’s losses. In the European session, the pair is trading in the mid-1.36 range. In economic news, German Final CPI declined, hitting a three-month low. It will be a busy day over in the US, with three key releases on the schedule – Core Retail Sales, Retail Sales and Unemployment Claims.

Eurozone manufacturing releases have not impressed in January. Eurozone Industrial Production slid 0.7%, short of the estimate of a decline of 0.2%. The French release posted a decline of 0.3%, shy of the estimate of -0.1%. For both indicators, this was the third decline in four tries. Italian Industrial Production headed south after three straight gains, with a decline of 0.9%. The markets had expected a reading of 0.0%. These low figures point to weakness in the Eurozone manufacturing sector.

Federal Reserve chair Janet Yellen didn’t generate much excitement in the markets when she testified before Congress on Tuesday. She said that the Fed plans to continue trimming QE, provided that the employment picture continues to improve and inflation rises. She acknowledged that even though the unemployment rate has improved steadily, the recovery in the labor market is far from complete and the Fed plans to keep interest rates at ultra-low levels. Yellen, who took over as Fed chair on February 1, is expected to continue the policies of her predecessor, Bernard Bernanke. Meanwhile, JOLTS Job Openings, a key event, showed little change in January, with a reading of 3.99 million. This was short of the estimate of 4.04 million. If Thursday’s Unemployment Claims do not meet expectations, the markets could get nervous about the US employment picture.

With the US economy pointed in the right direction, the Federal Reserve has implemented two tapers of $10 billion to the QE scheme, reducing QE to $65 billion each month. We could see another taper when the Fed meets in March. Former Fed chair Bernard Bernanke took his time making the decision, and the taper train will be hard to stop, barring any unexpected downturns in the economy. The Fed plans to wind down QE in $10 billion installments, completing the process by the end of 2014.

Last week, the ECB left interest rates unchanged at 0.25%. That was expected, but the upbeat message from ECB head Mario Draghi was not. Draghi shrugged off the persistently low inflation levels afflicting the Eurozone and said the ECB would re-evaluate the situation in March, with negative deposit rates a possibility. Earlier in the week, ECB Governing Council member Erkki Liikanen said that negative interest rates remain an option should the inflation outlook worsen. These kinds of sentiments out of Brussels could weigh on the euro, as lower interest rates make the euro less attractive to investors.

EUR/USD for Thursday, February 13, 2014

EUR/USD February 13 at 11:15 GMT

EUR/USD 1.3661 H: 1.3686 L: 1.3585

EUR/USD Technical

• EUR/USD has posted strong gains in Thursday trading. The pair pushed above the 1.36 line in Asian trading and continues to move higher in the European session.
• 1.3649 has switched back to a support role as the euro trades at higher levels. This is a weak line which could be tested during the day. The next support line is at 1.3585.
• 1.3786 is the next line of resistance. There is followed by resistance at 1.3893.
• Current range: 1.3649 to 1.3786

Further levels in both directions:

• Below: 1.3649, 1.3585, 1.3410, 1.3347 and 1.3255
• Above: 1.3649, 1.3786, 1.3893 and 1.4000

OANDA’s Open Positions Ratio

EUR/USD ratio has reversed positions in Thursday trade, pointing to gains in short positions. With the euro pointing sharp gains, a large number of long positions have been covered, resulting in a larger percentage of open short positions. Short positions enjoy a strong majority in the ratio, indicative of trader bias towards the dollar reversing directions and moving higher against the euro.

The euro has surged on Thursday. We could still see more action in the North American session, as the US releases key employment and retail sales data later in the day.

EUR/USD Fundamentals

• 7:00 German Final CPI. Estimate -0.6%. Actual -0.6%.
• 9:00 ECB Monthly Bulletin.
• 13:30 US Core Retail Sales. Estimate 0.1%.
• 13:30 US Retail Sales. Estimate 0.0%.
• 13:30 US Unemployment Claims. Estimate  331K.
• 15:00 US Business Inventories. Estimate 0.4%.
• 15:30 US Natural Gas Storage. Estimate -234B.
• 18:01 US 30-year Bond Auction.

*Key releases are highlighted in bold

*All release times are GMT

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