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EUR/USD  has posted gains  on Wednesday, recovering the losses we saw on Wednesday. In the European session, the pair is trading in the high-1.36 level. German Final CPI declined, hitting  a three-month low. In the US, it will be a busy day with three key releases – Core Retail Sales, Retail Sales and Unemployment Claims.

Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar.

EUR/USD Technical

  • EUR/USD  crossed above the 1.36 line in the  Asian session and closed at 1.3627. The pair  has moved higher  in the European session.

Current range: 1.3650 to 1.37

Further levels in both directions:

  • Below: 1.3650, 1.3580, 1.3515, 1.3450, 1.34, 1.3320, 1.3295, 1.3175, 1.31 and 1.3050.
  • Above: 1.37, 1.38, 13915 and 1.40.
  • 1.3650 has switched to support as the euro moves higher. 1.3580 follows.
  • The round number of 1.37 is the next line of resistance. 1.38 is stronger.

 

EUR/USD Fundamentals

  • 7:00 German Final CPI. Exp. -0.6%. Actual -0.6%.
  • 9:00  ECB Monthly Bulletin.
  • 13:30 US Core Retail Sales. Exp. 0.1%.
  • 13:30 US Retail Sales. Exp. 0.0%.
  • 13:30 US Unemployment Claims. Exp. 331K.
  • 15:00 US  Business Inventories.  Exp. 0.4%.
  • 15:40 US Natural Gas Storage. Exp. -234B.
  • 18:01 US 30-year Bond Auction.

*All times are GMT

For more events and lines, see the  Euro to dollar forecast.

EUR/USD Sentiment

  • 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 climb out of the doldrums.
  • 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 and  the Fed plans to keep interest rates at ultra-low levels. 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. If Thursday’s Unemployment Claims do not meet expectations, the markets could get nervous about the US employment picture.
  • QE cuts  on track:  With the US economy pointed in the right direction, the Federal Reserve  has implemented two  tapers of $10 billion to the QE scheme, reducing QE to $65 billion each month.  We could see another taper when the Fed meets in March.  Former  Fed chair Bernard Bernanke took his  time making the decision, and the taper train will be hard to stop, 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.
  • ECB holds course: Last week, the ECB left interest rates unchanged at 0.25%. This was expected, but the upbeat message was 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.  Earlier in the week,  ECB Governing Council member Erkki Liikanen said that negative interest rates  remain an option  should the inflation outlook worsen. These kind of sentiments out of Brussels could weigh on the euro.

 

More:  Analysis: ECB expects the situation to sort itself out, but things could still worsen