EUR/USD April 18 – Steadies After Sharp Losses

EUR/USD  continues to display volatility as the pair  plunged about  150 points on Wednesday (April 17th). The markets reacted negatively after a senior ECB official stated that a rate cut was a possibility. Thursday is another quiet day, with  just one release out of the  Eurozone,  the Spanish 10-year bond auction. In the US, the markets will be looking for some badly needed positive news,  as Unemployment Claims and the Philly Fed Manufacturing Index are released later today.  

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

EUR/USD Technical

• Asian session: Euro/dollar  edged higher, touching a high of 1.3161 and consolidating at 1.3151.  The pair  has is unchanged in the European session.
• Current range: 1.3140 to 1.3170.

Further levels in both directions:  

• Below: 1.3140, 1.31, 1.3050, 1.30, 1.2960, 1.2880, 1.2805, 1.2750 and 1.27.
• Above: 1.3170, 1.3255, 1.3290, 1.3350 and 1.34.
• On the upside, 1.3170, a key level, is providing weak resistance. 1.3255 is stronger.
• 1.3140 is providing weak support. The next support level is at 1.3100.

Euro  steady  following sharp losses – click on the graph to enlarge.

EUR/USD Fundamentals

• Tentative:  Spanish 10-year Bond Auction
• 12:30 US Unemployment Claims. Exp. 349K
• 14:00 US Philly Fed Manufacturing Index. Exp. 2.7 points
• 14:00 US CB Leading Index. Exp. 0.1%
• 14:30 US Natural Gas Storage. Exp. 35B
• Day 1:  G20 Meetings
• 16:00 US  FOMC Member Sarah Bloom Raskin  Speaks

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

EUR/USD Sentiment

• Euro sinks on rate cut possibility: The euro pushed higher  on Tuesday, but it didn’t take much to bring it back down the next day. The markets reacted negatively to comments by ECB Governing Council member Jens Weidmann that the ECB could lower rates if economic and inflation data warranted such a move. The markets were also unnerved following the release of an IMF report that found that the Eurozone is the weakest part of the global economy, and called on the ECB to lower interest rates in order to boost economic growth. The IMF reduced its forecast of Eurozone growth in 2013  from 0.2% to -0.2%, and also downgraded its forecast of German growth from 0.9% to 0.6%.
• Key US numbers point downward: US economic releases continue to disappoint the  markets, as Tuesday’s major events fell below expectations.  Building Permits dropped from 0.95 million  to 0.90 million, missing  the estimate of 0.94 million. Core CPI posted a weak gain of 0.1%, below the estimate of 0.2%. There was some good news from Housing Starts, which hit a multi-year high, improving to 1.04 million. This easily beat the  forecast of 0.93 million. 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. The markets will be hoping for a turnaround as the US releases additional key numbers on Thursday.
• Cyprus  will get bailout, but problems remain:  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 original deal collapsed after Cyprus balked at taxing every bank deposit in the country, following a huge outcry on the island. The  EU has agreed to the bailout, but Cyprus must kick in EUR 13 billion. The country plans to raise these funds through a combination of taxes on uninsured depositors, tax rises and spending cuts. 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, which will be winded down  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, which will pose serious challenges for the government.
• Italy struggles with political impasse: Remember the Italian election back in February that failed to produce a clear winner? Well, unfortunately  not much has happened since, as Italy has been in a political crisis since then. Mario Monti remains head of a caretaker government, but has been unable to continue with badly-needed economic reforms due to the political impasse. Monti and center-left leader Pier Luigi Bersani are hoping to reach agreement choosing a successor to President Giorgio Napolitano, who will step down in May. The crisis in the Eurozone’s third largest economy could undermine the Eurozone, and the markets are hoping that the choosing of a new president will be the first step in establishing a new government.