EUR/USD continued to recover from the big fall, but bowed before the resistance line. The recovery, fueled also by a positive figure from Germany, seems like a dead cat bounce at the moment. The FOMC minutes still support the US dollar, and the upcoming elections in Italy on Sunday and Monday deter some potential euro buyers.
Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar.
EUR/USD Technical
- Asian session: Euro/dollar climbed very gradually in a tight range and managed to stabilize above 1.32.
- Current range: 1.3170 to 1.3255.
Further levels in both directions:
- Below: 1.3170, 1.3130, 1.3110, 1.3030, 1.30 and 1.2960.
- Above: 1.3255, 1.3290, 1.3360, 1.34, 1.3486, 1.3588, 1.3690 and 1.3740.
- 1.3170, which capped the pair for a long time, is now strong support.
- On the upside, 1.3255 is the next line of resistance.
Euro/dollar cautious in low range – click on the graph to enlarge.
EUR/USD Fundamentals
- 7:00 German Final GDP. Exp. -0.6%, actual -0.6%.
- 9:00 German Ifo Business Climate. Exp. 104.9. Actual 107.4 points. EUR/USD rose on the good news.
- 14:00 Belgian NBB Business Climate. Exp. -11.1 points.
- 15:30 US FOMC member Jerome Powell talks.
For more events and lines, see the Euro to dollar forecast
EUR/USD Sentiment
- Italian elections loom: The euro-zone’s third largest economy goes to the polls on Sunday and Monday. Results are expected Monday at 15:00. There is a close race between current center-leaning PM Mario Monti, center left leader Pier-Luigi Bersani, center-right PM Silvio Berlusconi and also the alternative candidate Beppe Grillo of the 5 Star Movement. There are fears that Berlusconi will eventually fare very well, and could return to his former job. Another fear is that Italy will have a hung parliament. The best scenario for the markets is a strong outcome for Bersani and Monti, that would form a government together and continue the current policy. Berlusconi’s improving rating woke up the campaign which seemed unimportant beforehand. A diversion from the path of reform could significantly hurt the euro.
- Positive German surveys: The IFO figure exceeded expectations and joined the positive ZEW number. This increases the optimism that Germany will quickly return to strong growth in Q1, after a contraction of 0.6% in Q4. However, PMI numbers showed that the rest of the continent is still in dire straights – a deep recession.
- FOMC Minutes Boost Dollar: The Federal Reserve released the minutes of its most recent FOMC meeting on Wednesday. The minutes indicated that policymakers had discussed slowing or even stopping the current round of QE before the US employment situation brightens, due to concern about the negative effect that QE could have on the financial markets. This is the same reaction seen after the previous meeting minutes, but the policy is unlikely to change anytime soon. The minutes still move markets.
- Draghi discusses euro: Earlier this week, ECB chief Mario Draghi testified before the European Parliament Committee on Economic and Monetary Affairs. Draghi said that the Eurozone is stable, but acknowledged that the economy was weak after three straight quarters of negative growth. He reiterated that he expects the Eurozone to show improvement later in 2013. Draghi also touched on the hot topic of currency exchange rates. He repeated his concern that the high value of the euro could impact on the ECB’s inflation outlook, but sought to reassure his listeners that the euro’s exchange rate was not a policy target.
- G-20 issues statement on exchange rates: The leaders pledged not to “target our exchange rates for competitive purposes”, and to move more rapidly to market-determined exchange rate systems. The G-20 statement did not make reference to Japan, which has come under fire for monetary policies which have led to free-fall in the value of the Japanese yen. The G-20 also stated that more effort was needed to continue to strengthen the Eurozone, by building a stronger economic and monetary union. Here are the 4 winners and 4 losers of currency wars.
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