EUR/USD Oct. 9 – Dollar Strengthens as Yellen to Head

The US dollar has gained ground in Wednesday trading, as EUR/USD  has dropped into the mid-1.35 range in the European session. The dollar got a boost after reports that President Obama will nominate Federal Reserve Vice Chairwoman Janet Yellen to  head the Federal Reserve  early next year.  In economic news, today’s highlight is the minutes from the Fed’s last policy meeting. In the Eurozone, the markets will be keeping an eye on German Industrial Production. The US government shutdown continues, with little progress over the budget deadlock or the impending debt ceiling.

Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar.

EUR/USD Technical

• In the  Asian  session, EUR/USD  was busy, crossing above the 1.36 line but then losing ground. The pair consolidated at around 1.3560.  The pair  has edged  lower  in the  European session, as the euro remains under pressure.
• Current range: 1.3500 to 1.3570.

Further levels in both directions:  

• Below: 1.3500, 1.3460, 1.3415, 1.3325, 1.3240, 1.3175, 1.31, 1.3050 and 1.3000.
• Above: 1.3570, 1.3650, 1.3710, 1.3800, 1.3870 and 1.3940.
• 1.3500 is  providing  support.
• 1.3570 has reverted to a resistance line. 1.3650 is next.

EUR/USD Fundamentals

• 10:00  German Industrial Production.  Exp. 1.1%.
• 14:00 US FOMC Member Charles Evans Speaks.
• 14:30 US Crude Oil Inventories. Exp. 0.9M.
• 17:01 US 10-year Bond Auction.
• 18:00 US FOMC Meeting Minutes.
• 22:00 ECB President Mario Draghi Speaks.

* All times are GMT.

For more events and lines, see the  Euro to dollar forecast.

EUR/USD Sentiment

• Yellen to take over as Fed head: The dollar is broadly higher on Wednesday, after reports that President Obama will nominate Susan Yellen to replace Bernard Bernanke as  chairman of the Federal Reserve. Bernanke is due to retire early next year, and Yellen, who serves as Fed vice-chairwoman, became the leading candidate after Lawrence Summers withdrew his candidacy. Yellen is considered dovish in stance and has supported Bernanke in three rounds of QE increases. Meanwhile, the markets will be paying close attention to the release of the FOMC minutes later today, looking for more clarity about the Fed’s position on QE tapering.
• Mixed data out of Germany: Germany posted an  unexpectedly strong  trade surplus in September. The surplus widened to 15.6 billion euros, compared to 14.5 billion the previous month. This easily beat the estimate of 15.1 billion. However, the news was not as good from German Factory Orders, which dropped by 0.3%. The estimate stood at 1.2%. Factory Orders has now posted 3 declines in the past 4 releases. We’ll get another look at manufacturing data later on Wednesday, with the release of German Industrial Production. Germany is the largest economy in the Eurozone, so German releases have a strong impact on market sentiment toward the Eurozone and should be treated as market-movers.
• Finger pointing continues in Washington:  The US shutdown has now entered its second week, and the Republicans and Democrats continue to play the blame game. Neither side is showing any flexibility, at least in front of the cameras. Polls show that  most of the public blames the Republicans for the impasse, and this is likely  increasing the pressure on the Republicans to  agree to pass the budget so that the government can resume operating. The economic damage from the shutdown is not expected to be  substantial, but  the political fallout of this crisis  will likely  be significant.
• Debt ceiling  countdown:  As the shutdown drags on,  a far more serious crisis is lying just around the corner – the debt ceiling. The US has a debt worth $16.7 trillion, and will run out of funds to service the debt by October 17, unless Congress authorizes raising the debt ceiling. Otherwise, the US could potentially default on its obligations, which could cause chaos in the domestic and international markets. There is a lot of bad blood between the Republicans and Democrats over the shutdown, and this will undoubtedly complicate negotiations over the debt ceiling. With  just a week to go  until the debt ceiling is reached, the  markets could get  volatile if the politicians in Washington don’t get their act together  quickly.