EUR/USD July 12 – Modest Losses as Markets Await Key

EUR/USD has reversed direction following the euro’s huge gains on Wednesday. The  euro  jumped following the release of the FOMC’s most recent policy meeting, which showed that  Federal policymakers were divided over  tapering QE.  The dollar  continues to post modest gains in  Friday trading, as  the pair trades around 1.3040 in the  European session. In economic news, US Unemployment Claims disappointed, coming in well above expectations. On Friday, Eurozone Industrial Production looked weak, posting a four-month low. In the US, the week wraps up with two key releases – PPI and UoM Consumer Sentiment.

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

EUR/USD Technical

• Asian session: EUR/USD was very quiet, in contrast to the previous Asian session.  The pair touched a low of 1.3074 and consolidated at 1.3077. In the European session,  Euro/dollar has dropped to the 1.3040 level.

Current range: 1.30 – 1.3050.

Further levels in both directions:    

• Below: 1.30, 1.2940, 1.2890, 1.2840, 1.28, 1.2750, 1.27, 1.2660 and 1.26.
• Above: 1.3050, 1.3100, 1.3160, 1.32, 1.3255, 1.3350 and  1.34.
• 1.30  continues to  provide weak support.  1.2940 is next.
• On the upside, 1.3050 is under pressure. The next line of resistance is at the round number of 1.31.

EUR/USD  posts modest  losses  – click on the graph to enlarge.

EUR/USD Fundamentals

• 9:00  Eurozone Industrial Production. Exp. -0.2%. Actual -0.3%.
• 12:30 US PPI. Exp. 0.5%.
• 12:30 US Core PPI. Exp. 0.2%.
• 13:55 US Preliminary UoM Consumer Sentiment. Exp. 85.3 points. See how to trade this event with EUR/USD.
• 13:55 US Preliminary UoM Inflation Expectations. Exp. 3.1%.
• 15:00 US FOMC Member James Bullard Speaks.

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

EUR/USD Sentiment

• Euro jumps  after release of Fed minutes: The euro has been struggling of late, but caught a huge break after the release of the FOMC minutes from the June policy meeting. The minutes indicated that Federal Reserve policymakers are closely split over when to scale down the current round of QE, in which the Fed purchases $85 billion in assets each month. About half of the policymakers favor commencing tapering before the end of 2013, while others feel that the labor market  is still too weak. The dollar continued to fall as Fed Reserve chair Bernard Bernanke gave a speech in which he said that the Fed would  maintain accommodative monetary policy for the foreseeable future, due to  low levels of inflation and the high US unemployment rate. The dollar was broadly weaker as a result, and the euro took full advantage,  posting gains of  some  350 points. The dollar has recovered some of these losses on Thursday  and Friday.
• Bernanke more dovish about QE tapering  : US employment numbers have looked good recently, so much so that there was a lot of talk about the Federal Reserve tapering QE sometime in 2013. However, Thursday’s release of the FOMC minutes pointed to a split amongst Fed policymakers whether to maintain QE or scale down the bond-purchasing program. Fed chair Bernanke sounded cooler about QE tapering than he did in June, and stated that unemployment would have to drop to 6.5% before the Fed made a move. The markets reacted quickly to these developments, and the US dollar was broadly weaker as a result. Meanwhile, Unemployment Claims disappointed on Thursday, coming in at 360 thousand, well above the estimate of 342 thousand.
• ECB says low rates to continue:  The ECB continues to send out signals that  interest rates will be maintained or even cut.  On Thursday, the ECB  stated in its monthly bulletin that it  expects  rates to be maintained over even lowered, but remained  “flexible”  about its low rate policy, with inflation being a key factor in any future moves. ECB policymaker Jens Weidmann echoed these sentiments. saying that the ECB’s monetary policy depended on economic conditions in the Eurozone.
• Spanish PM under fire: Just when it seemed that the Portuguese government had dodged a severe political crisis, its eastern neighbor has its own political hot potato to worry about. The ruling party in Spain appears to have been involved in a corruption scandal, and now Prime Minister Mariano Rajoy has been implicated as well. There is a report in the Spanish media that Rajoy received  illegal payments  while serving as a minister in the Aznar government back in the late ’90s.  If the scandal deepens,  it could  topple the  government, and lead to turmoil in the country. Clearly, another political crisis in Europe will have a negative impact on the shaky euro.