EUR/USD Jan 15 – Softer After Weak Euro Industrial Data

EUR/USD was down as the markets reacted to disappointing industrial data out of the Eurozone on Monday. Both Eurozone and Italian  Industrial Production releases were well below  expectations.  German releases continue to be a source of concern, as the German Wholesale  Price Index  also failed to meet the estimate.   After a quiet day on Monday, the US markets are in full swing today, with three key releases – Core Retail Sales, PPI, and  Retail Sales.

EUR/USD Technical

• Asian session: Euro/dollar lost ground,  as it touched a low of 1.3339. The pair then  consolidated at 1.3353. The pair has edged higher  in  the European session.
• Current range: 1.3360 to 1.34.

Further levels in both directions:  

• Below: 1.3360, 1.3290, 1.3240, 1.3170, 1.3130, 1.3110, 1,3030, 1.30, 1.2960, 1.2624 and 1.2590.
• Above: 1.34, 1.3480, 1.36, 1.3750 and 1.3838.
• 1.3360 is providing weak support. 1.3290 is stronger.
• On the upside, 1.34 remains in place. 1.3480 is the next line of resistance.

Euro/dollar  loses  ground after weak Eurozone data  – click on the graph to enlarge.

EUR/USD Fundamentals

• 7:00 German Final CPI. Exp. 0.9%. Actual 0.9%.
• 7:45  French Government Budget Balance. Actual -103.4B.
• 10:00 Eurozone Trade Balance. Exp. 8.2B.
• 13:00 US FOMC Member Eric Rosengren Speaks.
• 13:30  US Core Retail Sales. Exp. 0.2%.
• 13:30 US PPI. Exp. -0.1%.
• 13:30  US Retail Sales. Exp. 0.2%.
• 13:30 US Core PPI. Exp. 0.2%.
• 13:30 US Empire State Manufacturing Index. Exp. 1.9 points.
• 15:00 US Business Inventories. Exp. 0.3%.

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

EUR/USD Sentiment

• Euro  enjoys multi-month highs: The euro has taken off since the ECB rate decision on Thursday, and has gained over three cents in that very short time. The euro pushed as high as the 1.34 line on Monday, but has settled back in the mid-1.33 range. EUR/USD has not traded at these levels since April, as the euro starts off 2013 with an impressive  start. Will the upward move continue? While the euro is flying high, the Eurozone economy is clearly not, as recent economic  numbers continues to look weak. If this continues, we could see the euro lose some ground against the US dollar.
• Markets cheer ECB rate decision: At its policy meeting on Thursday, the ECB maintained it benchmark interest rate at its current level of 0.75%. Although this move (or non-move) was widely expected, market sentiment rose after the announcement, for two reasons. First, the decision to stay the course was unanimous,  in contrast to the previous rate announcement in December, where there  were mixed  views.  Although growth in the zone is weak and unemployment is persistently high, the ECB expressed its confidence in the Eurozone economy by  avoiding a  rate cut  in order to bolster the Eurozone. This was underscored in remarks by ECB head Mario Draghi in a press conference after the rate announcement. Draghi stated that market confidence had improved, and that the Eurozone economy should show improvement later in 2013. Second, and no less important to the markets, there was no indication from the ECB that it might resort to  lowering rates in the near future. In doing so, the ECB is sending a strong message to the markets that for the near future at least, it is likely to make do with unconventional monetary steps as it tries to help along the Eurozone economy.
• Eurozone numbers weak:   The euro  may have  started off 2013 in fine form, but the same cannot be said for the Eurozone economy. Unemployment continues to be a major headache, with the Eurozone rate stuck at 11.8%, and Greece and  Spain reeling from 25% unemployment.  PMIs continue to point  to  contraction in the economy, and  Monday’s industrial production numbers were well below forecast.  France and Italy have imposed austerity measures to try and regain their economic footing, but any recovery promises to be slow. Even Germany, the locomotive of Europe, is in trouble, with  a string of disappointing releases.  If we don’t see improvement in 2013, market sentiment will tumble, and likely take the euro with it.
• German numbers continue to disappoint: The once mighty German economy  continues to  be a source of concern. Recent economic data points to serious trouble in the Eurozone’s largest economy. Trade Surplus dropped to its lowest levels since May, and German Factory Orders fell by 1.2%. German Industrial Production, an important manufacturing indicator, also  looked sluggish.  Although the indicator managed to push into positive territory for the first time since September, the gain was a paltry 0.2%, well below the estimate of 1.1%. For the third straight month, German WPI fell well below the market forecast. If the Eurozone is to get back on its feet later this year, it will need Germany to lead the way.
• US Trade Deficit Widens: The US Trade Deficit ballooned last month, posting a deficit of $48.7 billion, way above the estimate of $41.1 billion. The sharp demand for imports signals that US consumers are  purchasing more imported goods, which is good news for the global economy. The euro responded by racking up more gains against the US dollar. At the same time, the US recovery is still having trouble getting on track, as the US continues to release mixed data. Unemployment figures have not looked good of late, and the staggering debt load will have to be dealt with by a divided Congress. In a closely watched speech on Monday, Federal Reserve Chairman Bernard Bernanke added his concern about the speed of the US recovery.  Bernanke noted that the economy has shown signs of improvement, but he was still unsatisfied with the economy’s progress.