EUR/USD April 15 – Limited Losses as US Numbers Continue

EUR/USD is lower as we begin the new trading week. The pair has dropped below the 1.31 line, and was trading in the mid-1.30 range in Monday’s European session.  After a busy Friday, which saw  more dismal US numbers,  this week is starting  off  quietly.  Eurozone Trade  Balance posted a higher surplus, beating the estimate.   In the US, the markets will be keeping  an eye  on the Empire State Manufacturing Index.  

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

EUR/USD Technical

• Asian session: Euro/dollar  dropped below  1.31, touching a low of 1.3061. The pair  consolidated at 1.3071. Euro/dollar has steady in the European session.
• Current range: 1.3050 to 1.3100.

Further levels in both directions:    

• Below: 1.3050, 1.30, 1.2960, 1.2880, 1.2805, 1.2750 and 1.27.
• Above: 1.3100, 1.3140, 1.3170, 1.3255, 1.3290, 1.3350 and 1.34.
• 1.31  continues to be tested, and is providing  weak resistance. 1.3170 is a key level.
•  On the downside, 1.3050  is under pressure. The round number of 1.3000 is stronger.

Euro  again drops below 1.31 level – click on the graph to enlarge.

EUR/USD Fundamentals

• 9:00 Eurozone  Trade Balance. Exp. 9.9B. Actual 12.0B.
• 12:30 US Empire State Manufacturing Index. Exp. 7.2 points.
• 13:00 US TIC Long-Term Purchases. Exp. 41.3B.
• 14:00 US NAHB Housing Market Index. Exp. 45 points.

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

EUR/USD Sentiment

• US drought continues on Black Friday: It was another bad week for US releases, underscored by four key readings on Friday, all of which missed their estimates. After strong employment numbers on Thursday, there was hope that the US would rebound after two weeks of weak readings, but the wheels just feel off the cart on Friday. Core Retail Sales and Retail Sales both declined by 0.4%. PPI dropped 0.6%, and UoM Consumer Sentiment came in at 72.3 points, way off the estimate of 79.1 points. The alarm bells may not have gone off just yet, but the continuing weak numbers are raising concerns about the extent of the US recovery.
• Eurogroup  agrees on  bailouts:  Eurogroup finance ministers met last Friday and approved a EUR 10 billion loan  to Cyprus. Under the agreement, Cyprus will have to kick in EUR13 billion. The Eurogroup also agreed to extend loans made to Ireland and Portugal under their bailout agreements. The Eurogroup extended the maturities on the loans by seven years in  order to  facilitate the return of the  two countries to the financial markets. The emergency loans were made to Ireland and Portugal  under the EFSF and EFSM.
• Cyprus President asks EU for help: The Cyprus bailout may not be grabbing the headlines, but the crisis is by no means behind us. Back in March, the EU and IMF agreed to provide EUR 10 billion, with Cyprus kicking in another EUR 7 billion. However, the deal collapsed after Cyprus balked at taxing every bank deposit in the country following a huge outcry on the island. The bailout has now ballooned to EUR  23 billion, with Cyprus agreeing to pay EUR 13 billion. Cyprus president  Nicos Anastasiades said he will ask the EU for more help, but it not clear if Cyprus is asking additional bailout funds or funds in another form. The bailout agreement calls for huge taxes on deposits over EUR 100,000. Deposits in the Bank of Cyprus will lose between 37.5% and 60%, while depositors in Laiki Bank could lose up to 80%. Under the bailout agreement, Cyprus must restructure its banking sector and impose austerity measures. Analysts estimate that the country’s GDP will be slashed by 13% in 2013 and 2014.
• Problems in Europe? Tell that to the euro: The Cyprus bailout crisis is not yet behind us, the Eurozone is suffering from a sputtering economy and high unemployment, and even ECB head  Mario Draghi has toned down his usual optimism about the Eurozone economy. Sounds like a recipe for a weaker euro?  Evidently not, as the euro continues to  look strong  against the dollar, having gained  about three cents  since the beginning of April.  Eurozone numbers have not shined, but the euro  continues to get  a boost from a long string of weak US numbers.
• Minutes show Fed split over QE: The FOMC meeting minutes were released earlier in the week, with the most interesting item being the fact that that they were leaked earlier than scheduled. The Federal Reserve has ordered an investigation into the matter. The minutes themselves turned out to be a non-event, with policymakers divided as to the extent and duration of the current round of QE. Some members wanted to  wind down  the program in mid-2013, while others felt it was more appropriate to wait until the end of the year. There was also discussion about whether to decrease the amount of purchases immediately, or continue the present levels until the end of the year. The division in opinion reflects uncertainty over the extent of the US recovery and the health of the economy. With the US reeling off a host of poor releases throughout April,  FOMC members might have had a different take  on  the QE program  had  the meeting  taken place in April rather than March. Meanwhile QE continues at its present levels of about $85 billion in  asset purchases each month.