After last week’s sharp losses, EUR/USD has leveled off as we begin a new trading week. On Thursday, the markets reacted negatively to comments by ECB head Mario Draghi, who warned that the high value of the euro was a risk to growth in the Eurozone. US Trade Balance numbers looked good, as the deficit narrowed significantly. On Monday, French Industrial Production declined, but managed to beat the estimate. Today’s highlight is the Eurogroup meeting in Brussels.
EUR/USD Technical
- Asian session: Euro/dollar was quiet, touching a high of 1.3391, and consolidated at 1.3379. The pair is unchanged in the European session.
- Current range: 1.3360 to 1.34.
Further levels in both directions: 
- Below: 1.3360, 1.3290, 1.3255 , 1.3170, 1.3130, 1.3110, 1.3030, 1.30 and 1.2960.
- Above: 1.34, 1.3480, 1.3588, 1.3690, 1.3740, 1.3860, 1.3915 and 1.40.
- 1.34 is providing weak resistance. 1.3480 is stronger.
- 1.3360 is a weak support level. This line could see activity if the euro continues to lose ground. 1.3290 is the next support level.
Euro/dollar steady after sharp drop last week – click on the graph to enlarge.
EUR/USD Fundamentals
- 7:45 French Industrial Production. Exp. -0.3%. Actual -0.1%.
- All Day: Eurozone Eurogroup Meetings.
- All Day: Eurozone ECOFIN Meetings.
- 18:00 US FOMC Member Janet Yellen Speaks.
For more events and lines, see the Euro to dollar forecast
EUR/USD Sentiment
- Euro slumps after Draghi’s comments: In January, the euro rallied following positive remarks by ECB head Mario Draghi about the Eurozone economy. Speaking at the ECB’s press conference last week, Draghi once again lit a fire under the currency, only this time in the opposite direction. Draghi warned that the high-flying euro was affecting prices and economic growth in the Eurozone. He stated that the exchange rate was not a policy target, but the ECB would “closely monitor money market developments”. The markets wasted little time in reacting to these comments, and the euro plunged, losing over a cent. Almost lost in all the excitement was the fact that the ECB maintained its benchmark interest rate at 0.75%.
- EU Agrees to Budget Cuts: After marathon negotiations in Brussels, EU leaders have hammered out a deal to cut the EU budget. This marks the first time that the bloc’s seven-year budget is being cut, from the current 994 billion euros to 960 billion. The cuts are modest in scale, but nonetheless an important step in reigning in spending. The deal is a hard-fought compromise, as it reduces the budget while providing more funds for agricultural aid. Although all EU leaders have signed off on the agreement, it must be approved by the European parliament, which is by no means certain. European Parliament head Martin Schulz has already stated that the budget will not pass in its current format.
- Germany, France spar over euro rate: In a recent speech before the European Parliament, French President Hollande called on the Eurozone to set a “medium term” target for the exchange rate of the euro. Hollande’s remarks were a response to the high value of the currency, which is hurting French exports and the manufacturing industry. However, German officials were quick to state their opposition to such a move. German Economy Minister Phillipp Roesler summed up the view in Berlin, declaring that “the objective must be to improve competitiveness and not to weaken the currency”. While the German economy is showing recovery signs, the French economy continues to stumble, and Hollande is grabbing for any crutches he can lay his hands on, including a more competitive euro. The question of currency intervention will not disappear anytime soon, with heavyweights France and Germany at loggerheads over the issue.
- Germany shows improvement: Germany’s economy may not be booming, but there are some signs of improvement in the Eurozone’s largest economy, as underscored by last week’s Trade Balance numbers. The country’s monthly surplus jumped to 16.8 billion euros, surprising the markets, which had expected a reading of 13.7 billion. This was the best showing since last November. German Factory Orders and Industrial Production were both within expectations, and recent employment figures were excellent. If the Eurozone is to get back on track in 2013, it will need a strong German economy to lead the way.
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