EUR/USD - Steady As Eurozone Industrial Production Shines

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

By Kenny Fisher

EUR/USD has edged higher in Tuesday trading, as the euro trades in the high-1.37 range in the European session. In economic news, French and German inflation data was weak, but within market expectations. Eurozone Industrial Production posting a strong gain of 1.8%. Over in the US, Tuesday’s key events include Core Retail Sales and Retail Sales.

There was good news out of the eurozone, as Industrial Production looked sharp. The key manufacturing indicator bounced back from a decline of 1.1% in November, posting an excellent gain of 1.8% in December, a multi-year high. This beat the estimate of 1.6%. The euro has not reacted to the strong release, but the common currency did test the 1.37 line earlier on Tuesday.

The first ECB rate announcement of 2014 was a non-event, as the central bank held the benchmark rate at a record low of 0.25%, as expected. Mario Draghi's follow-up press conference did not make waves and move the currency markets, as has often been the case in the past. Draghi said that monetary policy will remain accommodative for as long as is needed to help the eurozone economy recover, and that interest rates will likely remain at present or lower levels for the foreseeable future. If growth and inflation indicators continue to look weak, the ECB may have to take action at its next meeting in February. The euro shrugged off the ECB announcement and remained close to the 1.36 line.

US employment numbers started 2014 on a positive note, but Friday’s Non-Farm Payrolls was dismal, posting its lowest gain since May 2012. The key employment indicator dropped to just 74 thousand, down from 203 thousand a month earlier. This was nowhere near the estimate of 196 thousand. Although the unemployment rate dropped to 6.7%, this was due to a drop in the participation rate, which fell to 62.8%, its lowest since 1978. This figure points to a worrying trend of a jobless US recovery.

Friday's disappointing Non-Farm Payrolls report may create some concern in the markets, but is unlikely to change the Federal Reserve's path of tapering QE, which it started just this month. In December, outgoing Fed chair Bernard Bernanke strong hinted that the Fed planned to wind up QE by the end of 2014, reducing the asset-purchase program by increments of $10 billion at each meeting. The Fed will hold its next policy meeting on January 28, and the question is will the Fed reduce QE by another $10 billion, down to $65 billion each month. Most analysts feel that one bad employment report will not affect the taper schedule and we will see a reduction in QE at the next meeting.

In May, Portugal will wind up its bailout program, which saw the country receive a rescue package of EUR 78 billion from the EU and the IMF. Portuguese Treasury Minister Castelo Branco is hopeful that the country will be able to sell bonds through auctions before May. Until now, Portugal has been relying on banks to sell bonds. The end of the bailout should allow Portugal full access to debt markets. Ireland exited its bailout program in December, becoming the first eurozone member to do so since the debt crisis rocked the bloc in 2009.

EUR/USD for Tuesday, January 14, 2014

Forex Rate Graph 21/1/13

EUR/USD January 14 at 10:30 GMT

EUR/USD 1.3672 H: 1.3699 L: 1.3649

EUR/USD Technical

S3 S2 S1 R1 R2 R3
1.3500 1.3585 1.3649 1.3786 1.3893 1.4000
Click to enlarge
  • EUR/USD continues to show little movement in Tuesday trading. The pair touched a high of 1.3699 early in the European session.
  • 1.3649 is providing support. It is a weak line which could face strong pressure if the euro loses ground. This is followed by a stronger support line at 1.3585.
  • The pair faces strong resistance at 1.3786. This is followed by resistance at 1.3893.
  • Current range: 1.3649 to 1.3786

Further levels in both directions:

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

OANDA's Open Positions Ratio

EUR/USD ratio is pointing to gains in long positions in Tuesday trading. This is consistent with what we are seeing from the pair, as the euro has posted very slight gains. The ratio is made up largely of short positions, indicative of a trader bias towards the dollar moving to higher levels.

The euro is steady in Tuesday trading, with the pair trading quietly in the mid-1.36 range. With the US releasing retail sales numbers later in the day, we could see some volatility later in the North American session.

EUR/USD Fundamentals

  • 7:00 German WPI. Estimate 0.4%. Actual 0.4%.
  • 7:00 French WPI. Estimate 0.4%. Actual 0.3%.
  • 10:00 Eurozone Industrial Production. Estimate 1.6%. Actual 1.8%.
  • 12:30 US NFIB Small Business Index. Estimate 93.2 points.
  • 13:30 US Core Retail Sales. Estimate 0.4%.
  • 13:30 US Retail Sales. Estimate 0.2%.
  • 13:30 US Import Prices. Estimate 0.3%.
  • 15:00 US Business Inventories. Estimate 0.4%.
  • 17:45 US FOMC Member Charles Plosser Speaks.
  • 18:20 US FOMC Member Richard Fisher Speaks.

*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.