EUR/USD Retreats from Resistance on Negative Trade Balance

Trade balance in the Euro-zone was very disappointing, and showed a deficit of 900 million euros. A surplus of 1.7 billion was expected. This outweighs strong CPI published at the same time, and sends the euro down, away from the resistance line it approached.

Euro-zone trade balance usually has a minor effect on the currency, as it’s based on figures already published earlier, especially Germany’s trade balance. And Germany was doing great, triggering high expectations. This release shows the increasing gap between the rich and poor countries in the euro-zone.

EUR/USD is now at 1.4110, down from nearly 1.4150. Resistance at 1.4160 was approached and is now far. Support is at 1.4030. It was challenged early in the day, but is still far now.

For more levels and analysis, see the EUR/USD forecast.

Consumer prices are at an annual pace of 2.8%, as expected and approved the initial, flash estimate. Core CPI, which excludes the rising price of oil, was significantly revised to the upside – a pace of 1.6% annually, compared with expectations of a revision to 1.5% and the early read of 1.3%. This shows that there are some secondary effects, as Trichet says.

But, the negative trade balance had a stronger effect. The Euro-bearish sentiment is very strong now. The finance ministers of the Euro-zone countries are set to meet later today to discuss the bailout package for Portugal and especially to discuss Greece.

The absence of IMF chief Dominique Strauss-Kahn, arrested in New York, will make the situation much more complicated for the Euro.