EUR/USD Feb 28 – Steady, But Market Jitters Continue

EUR/USD  remains under pressure, but  is steady in Thursday trading.  The markets continue to be nervous about the political stalemate gripping Italy. With no clear winner in this week’s parliamentary elections, there are fears that a prolonged deadlock could lead to a new crisis in the Eurozone. There was some good news as  investors showed a strong demand for  10-year Italian bonds. In the Eurozone,  French Consumer Spending disappointed, hitting a five-month low.  German data continued to look good, as Unemployment Change beat the estimate. US key releases have looked sharp this week, and the markets are hoping to see strong numbers from today’s major releases – GDP and Unemployment Claims.

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

EUR/USD Technical

• Asian session: Euro/dollar was uneventful, as the pair touched a high of 1.3162 and consolidated at 1.3145. The pair is unchanged in the European session.
• Current range: 1.3130 to 1.3170.

Further levels in both directions:  

• Below: 1.3130, 1.3110, 1.3030, 1.30, 1.2960, 1.2812 and 1.2758.
• Above: 1.3170, 1.3255, 1.3290, 1.3360, 1.34 and 1.3486.
• 1.3130  is providing weak  support.
• On the upside 1.3170 is the next line of resistance. 1.3255 is stronger.

Euro/dollar steady after successful  Italian bond  auction  – click on the graph to enlarge.

EUR/USD Fundamentals

• All Day: German Preliminary CPI. Exp.  0.7%.
• 7:45 French Consumer Spending. Exp. -0.1%. Actual -0.8%.
• 8:55 German Unemployment Change. Exp. -5K. Actual -3K.
• 10:00 Eurozone CPI. Exp. 2.0%.
• 10:00 Eurozone Core CPI. Exp. 1.5%.
• 13:30 US Preliminary GDP. Exp. 0.5%. See how to trade this event with USD/JPY.
• 13:30 US Unemployment Claims. Exp. 361K.
• 13:30 US Preliminary GDP Price Index. Exp. 0.6%.
• 14:45 US Chicago PMI. Exp. 54.6 points.
• 15:30 US Natural Gas Storage. Exp. -165B.
• 17:30 US FOMC Member Sarah Bloom Raskin Speaks.

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

EUR/USD Sentiment

• Italian election produces political stalemate:  As the dust  begins to  settle following the Italian elections, the markets have settled down, but remain edgy. Even by Italian standards, the election was a shocker, with no clear party emerging as a clear winner.  The 5-Star Movement, which was largely a protest movement that was dubbed a “non-party”, shocked pundits by garnering more votes than any other single party. The Center-left bloc, headed by Pier Luigi Bersani, will have a majority in the lower house of parliament, but there is a near-split in the upper house. This leaves the country in a political deadlock, as any coalition must have a majority in both houses. Prime Minister Monti’s centrist bloc fared poorly at the polls, reflecting widespread voter dissatisfaction with Monti’s tough austerity measures. The inconclusive results were a worst-case scenario for the markets, and the stalemate could end up with  Italians going back to the polls. Meanwhile, Italy’s 10-year bond auction was a success, but the yield jumped up to 4.83%, compared to 4.17% last month.
• Eurozone politicians react to Italian elections: The shock of the results of parliamentary elections in Italy quickly spread beyond Italy, as Eurozone officials scrambled to put a brave face on the surprise results. German Foreign Minister Guido Westerwelle urged Italy to form a stable government as quickly as possible. Westerwelle noted that the entire Eurozone was “in the same boat” with regard to the debt crisis. French Finance Minister Pierre Moscovici stated that the results did not threaten stability in the Eurozone, but at the same time, it was essential that Italy gets its act together and form a new government. However, Spain’s foreign minister, Jose Garcia-Margallo did not hide his pessimism, warning that the election results could have dire consequences for both Italy and Europe.
• Bernanke says Fed  to hold course:  Testifying this week on Capitol Hill,  Fed Chair Bernard Bernanke sought to reassure the markets that the Fed was intent on continuing the current round of QE. Bernanke downplayed concerns that the Fed’s current monetary policy could cause a spike in inflation or lead to a stock market bubble. There had been some speculation after the release of minutes from the most recent policy meeting, that the Fed was considering winding down QE, but Bernanke stated that Fed  plans to  press ahead  with QE and ultra-low interest rates.
• US numbers sparkle: Largely overshadowed by the dramatic developments in Italy, the US posted a string of solid  releases this week. CB Consumer Confidence and New Home Sales looked very sharp. There was also good news on the manufacturing front, as the Richmond Manufacturing Index hit 6 points, easily beating the forecast of -4. Core Durable Goods Orders jumped 1.9%, while Pending Home Sales gained a strong 4.5%. Both key releases were well above expectations. The fly in the ointment was Durable Goods Orders, which missed the estimate. The markets are hoping to see more good news from Thursday’s key releases – US GDP and Unemployment Claims. If these two releases look sharp, we could see the dollar get a boost against the euro.