Why The EUR/USD Is Higher

Includes: FXE, UDN, UUP
by: FXstreet

By Richard C. Lee

For the third session in four, the EURUSD currency pair is higher. But, with very little economic data on the docket for the major currency, many are asking - what's driving the exchange rate higher? Given the optimistic U.S. political landscape and positive focus on improving conditions of previously troubled nations, it's easy to see why the single currency continues to gain ground.

Initially, yesterday's single currency gains can be tied to the German unemployment release earlier this morning. According to the Federal Statistics Office of Germany, labor market unemployment increased by 5,000 positions. Now, although it's the seventh gain in the last eight months, the report's recent findings show the fewest increase since the beginning of the summer. The lower print could be reflective of stabilization in the unemployed sector of the labor market, that continues to boast a 6.9% national unemployment rate - a near two decade low.

In addition, positive results from Thursday's Italian bond auction have bolstered euro near term fortunes. According to Department of Treasury data, today's Italian bond auction was met with supported investor demand. The bullish sentiment was reflected in the fact that benchmark 10-year bond yields dipped to 2-year lows. In addition to matching the 6 billion euro target set by Treasury officials, today's offering bolsters the notion that Italy won't be seeking a EU backed bailout any time soon as borrowing costs continue to plummet.

Ongoing fiscal cliff discussions have also propped up the euro against the greenback. With already mounting optimism that a deal can be reached by the end of the year -a soft target of Christmas - political leaders continue to work on concessions on both sides to avert the activation of over $600 billion in spending cuts and tax increases. The most recent development has U.S. Treasury Secretary Timothy Geithner meeting with key Congressional leaders in a series of meetings throughout the day.

In particular, Geithner will meet with House Speaker John Boehner, House Majority Leader Eric Cantor and Budget Committee Chairman Paul Ryan - all Republican party members. Any indications that meetings went well with key opposition party members would point to an early resolution to the impending crisis.

The fundamental picture remains positive for the euro. However, with key technical resistance at 1.3000, potential upside remains minimized for the single currency. Any attempt at either the 1.3200 or 1.3300 exchange rate will be predicated on a break of the aforementioned round figure barrier.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.