EUR/USD - Slight Gains After Sharp German Data

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 |  Includes: FXE, UDN, UUP
by: Dean Popplewell

By Kenny Fisher

EUR/USD has posted modest gains on Tuesday, as the pair trades in the mid-1.36 line in the European session. In economic news, German data looked impressive, as Retail Sales and Unemployment Change improved in December. Eurozone CPI Flash Estimate posted a gain of 0.8%, just shy of the estimate. In the US, ISM Non-Manufacturing PMI dropped to 53.0 points, well short of the estimate. As expected, the Senate confirmed Janet Yellen to head the Federal Reserve, starting in February. Today’s key event is US Trade Balance.

Germany started off 2014 with sharp numbers, as Retail Sales improved by 1.5%, reversing a downtrend of two straight declines. This beat the estimate of 0.5%. Unemployment Change was very sharp, declining by 15 thousand, the first decline in five months. The strong numbers are indicative of an improving German economy, the largest in the eurozone.

Eurozone CPI posted a gain of 0.8% in December, a slight drop from the 0.9% reading a month earlier. This is well below the ECB inflation target of 2%. The central bank has responded with rate cuts which have lowered the benchmark rate to a record low of 0.25%, but inflation hasn’t risen as hoped. The ECB will meet and announce a rate decision on Thursday. With the benchmark rate so low, we could see the ECB take other monetary steps, such as negative deposit rates. Currently, these rates are at 0.0%.

With a rickety economy and sky-high unemployment, Spain is often in the news for the wrong reasons, but Spanish releases have been a pleasant surprise early in 2014. There was more good news on Monday, as Spanish Services PMI jumped to an impressive 54.2 points, up from 51.2 points the month before. This was well above the estimate of 51.1 points. On Friday, Unemployment Change sparkled, dropping by 107.6 thousand, crushing the estimate of 24.3 thousand. This was the best reading ever in the month of December. Earlier in the week, Manufacturing PMI crossed above the 50-point level, indicating expansion. Spain may not be the next powerhouse in Europe, but the new year has started in great form for the eurozone's fourth largest economy.

As expected, the US Senate confirmed Susan Yellen as chair of the Federal Reserve by a wide margin on Monday. Yellen becomes the first woman to head the powerful central bank. She has been a strong supporter of outgoing chair Bernard Bernanke, who lowered interest rates and implemented a QE program in order to boost a struggling US economy. The Fed has now started to trim the $85 billion QE scheme, with a $10 billion cut as of January. We could see another taper at the next Fed policy meeting in late January. Yellen takes over the helm on February 1, and will chair her first policy meeting in March.

EUR/USD for Tuesday, January 7, 2014

Forex Rate Graph 21/1/13

EUR/USD January 7 at 11:35 GMT

EUR/USD 1.3641 H: 1.3650 L: 1.3611

EUR/USD Technical

S3 S2 S1 R1 R2 R3
1.3410 1.3500 1.3585 1.3649 1.3786 1.3893
Click to enlarge
  • EUR/USD has posted slight gains in Tuesday trading.
  • 1.3585 is providing weak support. This is followed by a support line at the round number of 1.3500.
  • The pair is testing resistance at 1.3649 and could break through this barrier during the day. This is followed by resistance at 1.3786.
  • Current range: 1.3585 to 1.3649

Further levels in both directions:

  • Below: 1.3585, 1.3500, 1.3410 and 1.336
  • Above: 1.3649, 1.3786, 1.3893, 1.4000 and 1.4140

OANDA's Open Positions Ratio

EUR/USD ratio has reversed positions in Tuesday trading, pointing to gains in short positions. This is not consistent with what we are seeing from the pair, as the euro has edged higher. The ratio is still made up largely of short positions, indicative of a trader bias towards the dollar reversing directions and gaining ground.

The euro has started the week with modest gains. With the US releasing Trade Balance later in the day, we could see some stronger movement from the pair during the North American session.

EUR/USD Fundamentals

  • 7:00 German Retail Sales. Estimate 0.5%. Actual 1.5%.
  • 8:55 German Unemployment Change. Estimate -1K. Actual -15K.
  • 10:00 Eurozone CPI Flash Estimate. Estimate 0.9%. Actual 0.8%.
  • 10:00 Eurozone PPI. Estimate -0.1%, Actual -0.1%.
  • 13:30 US Trade Balance. Estimate -40.2B.
  • 15:00 US IBD/TIPP Economic Optimism. Estimate 45.3 points.

*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.