EUR/USD – Steady as Talk of ECB Cut Grows

EUR/USD is trading quietly in Friday’s European session, as the pair trading in the low-1.30 range. There is growing speculation that the ECB will lower interest rates at next week’s policy meeting, and this could certainly affect the movement of the euro next week. In economic news, German data continues to disappoint, as German Import Prices declined for the first time since January. Eurozone M3 looked weak, missing the estimate. In the US, there was some relief from the string of bad numbers, as Unemployment Claims came in below expectations. On Friday, the US will release Advance GDP and UoM Consumer Sentiment.

Germany posted disappointing numbers this week and the euro reacted negatively. The continental currency took a hit on Tuesday, dropping sharply as German Service and Manufacturing PMIs posted readings below the 50-point level. This is a sign of contraction in these sectors, and points to weakness in the German economy. On Wednesday, German IFO Business Climate, a key release fell from 106. 7 points to 104.4 points. This was well below the forecast of 106.4 points. There was more bad news on Friday as German Import Prices dropped from 0.3% to -0.1%. The estimate stood at 0.0%. The reading is worrisome as it was the first decline in the indicator since January. Weak German numbers is a serious concern, since the Eurozone is very unlikely to reach the road to recovery if Germany, the zone’s locomotive, doesn’t take the lead with positive numbers.

Could we see a rate cut from the ECB next week? The Eurozone continues to stagnate with poor releases, and has its hands full with crises in Cyprus (bailout fiasco) and Italy (political gridlock). Speculation that the ECB will take action is growing in the markets. Goldman Sachs released a statement on Thursday, stating that it expects a 0.25% cut when the ECB meets next week. The prestigious firm also downgraded Eurozone growth for 2013, from -0.5% to -0.7%. The ECB will set rates next Thursday, but the possibility of a rate cut will likely to preoccupy the markets during the course of the week. 

In Italy, there have been some positive developments, and the country finally seems closer to forming a government after months of bickering by the parties. Lawmakers couldn’t agree on a new president, and in a surprise move, Giorgio Napolitano, who was scheduled to leave the post, was reelected. Earlier this week, Enrico Letta was named as prime minister. Letta’s Democratic Party does not have a parliamentary majority, so we can expect difficult coalition talks.  He is expected to try and form an alliance with former PM Silvio Berlusconi. Once a new government is formed, it will be faced with an economy mired in recession and an electorate that is unhappy with tough austerity measures.

The US has been having its share of problems as well. Since late March, almost all key releases have pointed  downwards, indicating weakness in a wide range of economic sectors. On Wednesday, Core Durable Goods, a key manufacturing event, declined by 1.4%, well below the estimate of a 0.5% gain. There was better news on Thursday, as Unemployment Claims dropped to 339 thousand, beating the estimate of 352 thousand. However, the markets remain concerned about the pace and  extent of the US recovery, and will want to see additional releases pointing upwards.

EUR/USD for Friday, April 26, 2013

1.3012 H: 1.3048 L: 1.2999

EUR/USD Technical

EUR/USD is trading quietly in Friday trading. The pair is receiving support at the critical 1.30 line. This line is a weak one, and was tested earlier today. There is a stronger support level at 1.2960. On the upside, the pair faces resistance at 1.3050. The next resistance level is at the round number of 1.3100.

• Current range: 1.3000 to 1.3050

Further levels in both directions:

• Below: 1.3000, 1.2960, 1.2880 and 1.2820
• Above: 1.3050, 1.31, 1.3170 and 1.3240

OANDA’s Open Position Ratios

The EUR/USD ratio is unchanged in Friday trading. This is reflected in the pair, which is not showing much movement. Traders should continue to monitor the ratio, as an increase in activity could be an early indication of movement by EUR/USD.

The euro is steady, as it trades above the 1.30 line. The US is releasing GDP data later on in the day, and this release could be a market-mover if the reading is not in line with market expectations.

EUR/USD Fundamentals

• 6:00 German Import Prices. Estimate -0.0%. Actual -0.1%.
• 8:00 Eurozone M3 Money Supply. Estimate 3.0%. Actual 2.6%.
• 8:00 Eurozone Private Loans. Estimate -0.8%. Actual -0.8%.
• 12:30 US Advance GDP. Estimate 3.1%.
• 12:30 US Advance GDP Price Index. Estimate 1.3%.
• 13:55 US Revised UoM Consumer Sentiment. Estimate 73.3 points
• 13:55 US Revised UoM Inflation Expectations.

*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.