EUR/USD April 26 Fed Fails to Impress Markets

Euro dollar  continued to  push upwards yesterday  (April 25th). This followed  a disappointing release  for US  Core Durable Goods, and  the  statement by the  Federal  Reserve in which it reiterated its commitment to  maintain low interest rates,  likely until 2014.  There are two key releases in the US today, Unemployment Claims and Pending Home Sales. If this data falls below the market expectations, we could see the euro rally  against the greenback before the end of the trading week.

Here’s an update on technicals, fundamentals and what’s going on in the markets.

EUR/USD Technicals

• Asian session: EUR/USD moved edged up slightly, reaching 1.3226, before consolidating at 1.3224. In the   European session, the  pair had  edged up slightly, but  retracted, and is  now trading at 1.3228.
• Current range: 1.3212 to 1.33.

• Further levels in both directions: Below: 1.3165, 1.3110, 1.3050, 1.30, 1.2945, 1.2873, 1.2760, 1.2660 and 1.2623.
• Above: 1.33, 1.34, 1.3437, 1.3486 and 1.3550.
• 1.3212 is providing weak support to the pair edges upwards.
• 1.33 is the next line of strong resistance.

Euro/Dollar  is up on weak US data and  the Fed announcement  – click on the graph to enlarge.

EUR/USD Fundamentals

• All Day:    German Prelim CPI.
• 7:30: ECB President Draghi Speaks.
• 12:30 US Unemployment Claims. Exp. +374K. See how to trade this event with USD/JPY.
• 14:00 Pending Home Sales. Exp. +1.2%.
• 14:30 US Natural Gas Storage. Exp. +46B.

For more events later in the week, see the Euro to dollar forecast

EUR/USD Sentiment

• FOMC Meetings – No Support for the Dollar:  To the surprise of absolutely no  one,  the Federal Reserve  repeated its commitment to maintain low interest rates  for the foreseeable future. In addition to leaving  its key interest rate  unchanged at 0% to 0.25%,   Fed  chief Bernanke announced at a press conference that all options “remain on the table”.    However, Bernanke did not so much as hint at QE, much to the relief of the markets.  For those lovers of English nuances, the Fed referred to inflation as having “picked up” rather than being “subdued”. Of course, traders  are more concerned, and rightly so,  with the market reaction to the Fed  announcment  rather than linguistic  acrobatics.
• Government Auctions – Successsful, But At What Price?: In Spain, the government managed to raise enough money on its short-term bonds, but at a steep price, as the country’s borrowing costs have almost doubled. An auction in Italy was also costly for the government, as borrowing costs are now at their highest level since January. The markets received some relief from the successful auction in the Netherlands, where yield debts declined.
• Weak US  Data Could Hurt Dollar: US economic releases this week have been less than stellar, to say the least.  Both Consumer Confidence and New Home Sales were down from the March figures. Core Durable Goods declined by -1.1%, well below the market forecast of a 0.6% increase. If US Unemployment Claims, and Pending Home Sales, two key indicators scheduled for release later today, post weak figures, we could see the dollar in real trouble.
• Spain’s Toxic Mess: With the crisis in Greece no longer in the daily headlines, attention has now shifted to Spain, with the fourth-largest economy in the Euro-zone. Unemployment stands at a staggering (and unsustainable) 24%, the housing market is at rock bottom, and the economy is contracting. If this wasn’t bad enough, there are disagreements with the EU over the deficit target, and regional instabilities which have exacerbated ethnic tensions.
• Weak European PMI Data Disappoints: PMI data released from the Euro-zone, France and Germany were mostly weak. French Services PMI and German Manufacturing PMI posted numbers well below the market forecast, and Euro-zone Services PMI and Manufacturing PMI also came in below the market predictions. This is a cause for concern, as the survey of purchase managers clearly points to weakened activity in the service and manufacturing sectors. Further weak releases out of Europe will make the markets even more nervous, and could affect the direction of the Euro.
• Election Uncertainty in France and the Netherlands: In France, Socialist challenger Francois Hollande will face President Nicholas Sarkozy in the presidential run-off after inconclusive results in the first round. Hollande is not considered pro-market, and the Euro could be affected, at least initially, if Hollande wins the election. As well, the Dutch government resigned on Monday, after failing to reach agreement on a budget to bring its deficit within EU limits. The election could be a referendum on the Netherland’s relationship with Europe, and put further strain on the Euro. In the short-term, the political uncertainty threatens to undermine the Netherland’s AAA rating.