EUR/USD started the trading week on a positive note, riding on better than expected data. However, the common currency showed how vulnerable it is to the topic of negative deposit rates, as one comment sent it back down, setting a double top.
Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar.
EUR/USD Technical
- EUR/USD started rose to 1.3770 before falling back down to 1.3720.
Current range: 1.37 to 1.3773.
Further levels in both directions:
- Below: 1.37, 1.3650, 1.3580, 1.3515, 1.3450 and 1.34
- Above: 1.3773, 1.38, 1.3830, 1.3895, 13915 and 1.40.
- 1.3773 now becomes a double top, and thus a stronger resistance line.
- 1.3650 is strong support if 1.37 is lost.
- Uptrend support still accompanies the pair.
EUR/USD Fundamentals
- 9:00 German Ifo Business Climate. Exp. 110.7. Actual 111.3
- 10:00 Final euro-zone CPI for January, exp. 0.7%, actual 0.8%. Core CPI, exp. +0.8%, actual +0.8%.
- 14:00 Belgian NBB Business Climate. Exp. -5.4 points.
- 14:00 US Markit Flash Services PMI. Exp. 56.9 points.
*All times are GMT
For more events and lines, see the Euro to dollar forecast.
EUR/USD Sentiment
- Another hint about negative rates: ECB Governing Council member Ignazio Visco said that a negative deposit rate is on the agenda in the upcoming March meeting. While the ECB may not take action, this comment certainly weighed on the euro. It joins some a similar hint from his colleague and some complaints about the euro’s strength from the head of the Eurogroup. The key to the ECB decision is the flash CPI figure for February, released on Friday. The German release on Thursday will also have a strong impact.
- Better German business sentiment: Contrary to the disappointing ZEW figure, Germany’s No. 1 Think Tank IFO released a more robust figure, and for those trading the euro as if it were the Deutschmark, this was good news. It’s important to note that PMIs for Germany and France came out short of expectations.
- Events in the Ukraine closely watched: The Ukrainian president was practically overthrown and is fleeing an arrest warrant. He may be in Russia. With the Winter Olympic Games now over in Sochi, Russian president Putin may get involved in his neighbor’s affairs. Political, military and economic turmoil (such as a default of the Ukraine on its debt) may trigger a contagion effect.
- Mixed numbers out of the US: Unemployment Claims dropped slightly last week, coming in at 336 thousand. After some recent weak releases on the employment front, the markets will be pleased with this release. Meanwhile, inflation indicators continue to raise concerns, as Core CPI posted a paltry gain of 0.1% for the second straight month. Weak inflation levels are indicative of weak economic growth and could spell trouble for the US recovery. On the manufacturing front, the Philly Fed Manufacturing Index slumped badly, posting a decline of -6.3 points, compared to +9.4 points a month earlier.
- Fed may adjust forward guidance: This week’s Federal Reserve minutes indicated that interest rates are unlikely to rise, even if unemployment drops to 6.5%. Previously, the Fed had said it would consider raising rates at the 6.5% threshold, but with unemployment falling faster than expected, Fed policymakers agreed that it would “soon be appropriate” to revise the Fed’s forward guidance regarding interest rate levels. The minutes also indicated that the Fed will likely continue trimming QE, barring any downturns in the economy.
More: Video: Game changing EUR event, USD/JPY before the burst and more
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