EUR/USD is listless on Wednesday, as the pair trades in the mid-1.36 level in the European session. Eurozone Industrial Production looked weak, posting its third decline in four months. Later in the day, ECB head Mario Draghi will speak at a banking conference in Brussels and the markets will be all ears. In the US, it’s a quiet day, with just three releases on the schedule. On Tuesday, Fed chair Janet Yellen testified before Congress and reiterated that the Fed plans to continue tapering QE. JOLT Job Openings showed little change in January and fell short of the estimate.
Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar.
- EUR/USD was quiet in the Asian session and closed at 1.3636. The pair has edged upwards in the European session.
Current range: 1.3580 to 1.3650
Further levels in both directions:
- Below: 1.3580, 1.3515, 1.3450, 1.34, 1.3320, 1.3295, 1.3175, 1.31 and 1.3050.
- Above: 1.3650, 1.37, 1.38, 13915 and 1.40.
- 1.3580 is providing support.
- On the upside, 1.3650 is under strong pressure. The round number of 1.37 is next.
- 10:00 Eurozone Industrial Production. Exp. -0.2%. Actual -0.7%.
- 15:30 ECB President Draghi Speaks.
- 15:00 US Crude Oil Inventories. Exp. 2.5M.
- 18:01 US 10-year Bond Auction.
- 19:00 US Federal Budget Balance. Exp. -16.4B.
*All times are GMT
For more events and lines, see the Euro to dollar forecast.
- Eurozone industrial data disappoints: Eurozone manufacturing releases have looked weak in January. Eurozone Industrial Production slid 0.7%, short of the estimate of a decline of 0.2%. The French release posted a decline of 0.3%, shy of the estimate of -0.1%. For both indicators, this was the third decline in four tries. Italian Industrial Production headed south after three straight gains, with a decline of 0.9%. The markets had expected a reading of 0.0%. We’ll need to see stronger manufacturing numbers if the Eurozone economy is to improve.
- Yellen Says tapers to continue: Testifying before Congress on Tuesday, new Fed chair Janet Yellen didn’t generate much excitement in the markets. She said that the Fed plans to continue trimming QE, provided that the employment picture continues to improve and inflation rises. She acknowledged that event though the unemployment rate has improved steadily, the recovery in the labor market is far from complete. Meanwhile, JOLTS Job Openings, a key event, showed little change in January, with a reading of 3.99 million. This was short of the estimate of 4.04 million.
- Taper moves on track: With the US economy pointed in the right direction, the Federal Reserve has implemented two cuts of $10 billion to the QE scheme, reducing QE to $65 billion each month. Only really bad figures can stop the Fed from continuing to reduce QE. The Fed took its time with making the decision, and it will be hard to stop it now, even if emerging markets crumble again. Another reason for pushing on with the move is that the Fed is more hawkish now. If there are no unexpected downturns, the Fed plans to wind down QE in $10 billion cuts, completing the process by the end of 2014.
- Euro gains after Draghi comments: Last week, the ECB left interest rates unchanged at 0.25%. This was certainly expected, but the upbeat message was certainly not, and the euro rallied. Not only did Draghi shrug off the persistently low inflation levels afflicting the Eurozone, but he also found a reason for every malaise: low headline inflation is due to energy prices, low core inflation is due to the program countries (Greece, Portugal, etc.), and even the squeeze in money supply, M3, is a result of the upcoming stress tests. Draghi expects the latter to improve shortly. However, he also said that more data is awaited in early March. The high exchange rate could result in even lower inflation and a move in March cannot be ruled out.
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