After a very quiet start to the week on Monday, EUR/USD has posted modest losses in Tuesday trading, with the pair trading in the low-1.33 range in European trading. The euro dipped lower despite another strong release from German Ifo Business Climate, as the key indicator cruised to a sixteen-month high. There are just three other events on Tuesday, highlighted by US CB Consumer Confidence.
Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar.
- In the Asian session, EUR/USD was quiet, touching a low of 1.3356 before consolidating at 1.3360. In the European session, the pair has edged lower.
Current range: 1.33 to 1.3350.
- Below: 1.33, 1.3240, 1.3175, 1.31, 1.3050, 1.30 and 1.2940.
- Above: 1.3350, 1.3415, 1.3450, 1.3520, 1.3590 and 1.37.
- The round number of 1.33 is providing weak support. 1.3240 is next.
- 1.3350 has reverted to resistance. 1.3415 is stronger.
- 8:00 German Ifo Business Climate. Exp. 107.1, actual 107.5 points.
- 13:00 US S&P/CS Composite-20 HPI. Exp. 11.9%.
- 14:00 US CB Consumer Confidence. Exp. 79.6 points.
- 14:00 US Richmond Manufacturing Index. Exp. -7 points.
For more events and lines, see the Euro to dollar forecast.
- German Ifo Business Climate rises: There was good news out of Germany on Tuesday, as German Ifo Business Climate posted its fourth consecutive gain. The key index climbed from 106.2 points in July to 107.5 in August, surpassing the estimate of 107.1 points. This was its best performance since April 2012. Eurozone releases have been pointing upwards, but if Europe is to put the recession behind it, it will need a strong and robust German economy to lead the way. We’ll get another look at German data on Wednesday, with the release of GfK German Consumer Climate.
- FOMC minutes increase QE speculation: When will the Fed taper QE? That is the million dollar question which continues to preoccupy the markets. Last week’s release of the FOMC minutes didn’t provide any clues as to timing, but appeared to confirm that QE tapering is a question of “when” rather than “if”. The minutes showed that Fed policymakers favor scaling back the bond-buying program, but are divided on the timing of such a move. The policymakers stated that recent US economic data was “mixed”, and all members agreed that it was still too early to scale back the current bond-buying levels of $85 billion each month. The markets are increasingly expecting the Fed to take action before the end of the year, possibly as early as September. As QE is a dollar-positive event, traders can expect the US currency to jump when the Fed does decide to press the trigger.
- Fed officials split over QE tapering: The annual Jackson Hole Summit wrapped up on Saturday, and there were no dramatic developments regarding QE tapering. Federal Reserve head Bernard Bernanke was a no-show, but other policymakers at the conference didn’t hesitate to express their views on QE. Dennis Lockhart, head of the Atlanta Fed, said that tapering could start in September, but only if US data justified such a move. There was a more hawkish statement from James Bullard, head of the St. Louis Fed. Bullard said that there was no need for the Fed to rush into QE tapering. The uncertainty over QE tapering has buoyed the US dollar, raised the yields on US treasury bonds and led nervous investors to pull billions of dollars out of emerging markets. As we get close to September, QE speculation could lead to turmoil in the markets.
- Dollar shrugs off weak releases: The US has posted some weak key releases, but the dollar remains firm against the euro and other major currencies. On Friday, US New Home Sales dropped sharply. The indicator had beaten the estimate for four consecutive releases, but that impressive streak came to a crashing end on Friday, as the indicator slid to its lowest level since January. Core Durable Goods Orders was released on Monday, and the key manufacturing index posted a decline of -0.6%. Despite these weak numbers, the dollar was not hurt, as the markets seem more focused on QE than on US economic data.
- Greece wants more aid but no strings attached: Greece has already received two bailouts from the troika, amounting to some 240 billion euros. Despite this massive infusion of funds, the country’s economy is still in difficult straits, and there is talk of a third bailout. On Sunday, Greek finance minister Yannis Stournaras said that Greece was looking for another 10 billion euros in aid, but would not adopt any austerity measures in return. Germany is unlikely be in a giving mood, with just weeks to go before national elections in Germany. Another rescue package for Greece could damage Chancellor Angela Merkel’s credibility, as she recently said she didn’t see a need for more aid to Greece.