EUR/ USD – Strong Gains as ECB Holds Rates at 0.75%

EUR/USD was up sharply in Thursday trading, as the pair gained about a cent, and broke above the 1.31 level. This followed the ECB decision to maintain interest rates at their current level of 0.75%. The markets reacted positively, and the euro was able to take full advantage, after struggling to tread above the 1.30 line. In economic releases, the markets will be keeping an eye on German Industrial Production. In the US, Unemployment Claims looked sharp, and the markets will be hoping that Friday brings more good news, with the release of the Unemployment Rate and Non-Farm Employment Change.

On Thursday, ECB policymakers voted to maintain the benchmark interest rate at 0.75%. Although the markets expected the rate to remain steady, and ECB head Mario Draghi didn’t have anything new to share at the ECB press conference, the markets were pleased, and the euro took advantage, gaining a cent against the dollar. Draghi once again reminded us that, yes, the Eurozone economy is having a tough go of it, but things will improve later in the year. Draghi also reassured his listeners that the crisis in Italy would not spread, but did call on member countries to implement needed structural reforms, in what could be seen as a hint to Italy to continue with its austerity measures in order to get its economy headed in the right directions. The ECB’s decision to maintain rates was not unanimous, as some policymakers wanted to lower rates. Given the lackluster performance of the Eurozone, with the notable exception of Germany, the ECB could well step in and lower rates if the Eurozone economy fails to turn around.

The political stalemate in Italy continues, as the recent election failed to crown a winner who could cobble together a coalition that can run the country. Italy, boasting the third largest economy in the Eurozone, is facing serious economic difficulties, and can ill-afford this political paralysis. Center-left leader Pier Luigi Bersani has offered to form a minority government with Beppe Grillo, head of the 5 Star Movement. However, Grillo, who continues to rave and rant against the establishment, has so far refused to join forces with any other party. Parliament will sit for the first time next week, and President Giorio Napolitano is expected to begin consultations with party leaders on March 19, as efforts to sort out the political paralysis shift into high gear. If Napolitano is unsuccessful, the only resort may be to send Italians back to the voting booths.

The US economy has posted some solid data recently, and this has raised speculation discussion as to whether the Fed might wind up its current round of QE, which involves the purchase of $85 billion in assets each month. Although Fed Chair Bernard Bernanke and Vice-Chair Janet Yellen have stated that QE will continue, signs of a stronger recovery would put pressure on the Fed to consider winding up or modifying the current asset purchase program. Employment numbers have been sharp this week, and if we see a drop in the Unemployment Rate of Friday, this would be further evidence that the recovery is gaining traction, and the Fed will face more pressure to wind down its stimulus package. 

EUR/USD for Friday, March 8, 2013

1.3097 H: 1.3109 L: 1.3080

EUR/USD Technical

EUR/USD roared back in Thursday trading, gaining over a cent. The pair has leveled off in Friday’s European session, as it tests the 1.31 level. The pair is facing resistance at 1.3130. This is followed by 1.3170, which is a key resistance line. On the downside, 1.3080 is providing weak resistance, and could continue to see activity if the euro loses any ground. The next support level is at the round number of 1.3000.

• Current range: 1.3080 to 1.3130

Further levels in both directions:

• Below: 1.3000, 1.2950, 1.2882 and 1.2802
• Above: 1.3080, 1.3130, 1.3170, 1.3280, 1.3350 and 1.34

OANDa’s Open Position Ratios

The EUR/USD ratio continues to shift directions, and is currently pointing to movement towards short positions. We are not currently seeing this from the currency pair, which has leveled off after the euro posted sharp gains in the Thursday session. With the ratio close to even split in long and short open positions, trader sentiment is divided as to which direction the pair will take. 

After a largely uneventful week, the euro was  back in action on Thursday, as it gained about a cent against the dollar. Does the euro have any momentum left, or will it call it a week? With the US releasing key employment numbers later on Friday, we could see some volatility if the data is not in line with market expectations.

EUR/USD Fundamentals

• 7:45 French Government Budget Balance. Actual -12.8B
• 11:00 German Industrial Production. Estimate 0.6%
• 13:30 US Non-Farm Employment Change. Estimate 162K
• 13:30 US Unemployment Rate. Estimate 7.9%
• 13:30 US Average Hourly Earnings. Estimate 0.2%
• 15:00 US Wholesale Inventories. Estimate 0.4%

*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.