EUR/USD July 17 Climbing as Weak US Data Fuels

EUR/USD rebounded as the US dollar dropped following further weak US economic data. Retail Sales dropped 0.5% in June, surprising the markets which had predicted an increase. This release comes on the heels of the UoM Consumer Sentiment, which  also below the market forecast. Will the Fed reconsider implementing QE3? Federal Reserve Chairman Bernard Bernanke will address what, if any  monetary action the Fed is prepared to take when he testifies at a Senate hearing on Tuesday  and Wednesday. Both German and Eurozone Economic Sentiments were very weak and came in  below markets forecasts, as confidence in the EZ continues to wane. Today’s key release in the United States is  CPI.

EUR/USD Technicals

• Asian session: Euro/dollar moved upwards, crossing the 1.23 line before retracing. In the European session, the pair  is climbing,  and has pushed above the 1.23 line.
• Current range: 1.2280 to 1.2330.

• Further levels in both directions:
• Below: 1.2280, 1.22, 1.2150, 1.20 and 1.1876.
• Above: 1.2330, 1.2360, 1.24, 1.2440, 1.2520 and 1.2624.
• 1.2330 is the next line of resistance.
• 1.22 has strengthened in support as the  EUR/USD  has moved upwards.
• 1.2280 is providing weak support, as the pair tests the 1.23 line.

Euro/Dollar stronger following weak US data – click on the graph to enlarge.

EUR/USD Fundamentals

• 9:00 German ZEW Economic Sentiment. Exp. -17.3 points. Actual  -19.6 points. See how to trade this event with EUR/USD.
• 9:00  Euro-zone ZEW Economic Sentiment. Exp. -18.3 points.  -22.3 points.
• 12:30: US Core CPI. Exp. +0.2%.
• 12:30: US CPI. Exp. 0.0%.
• 13:00 TIC Long-Term Purchases. Exp. 45.7B.
• 13:15 US Capacity Utilization Rate. Exp. 79.2%.
• 13:15 US Industrial Production. Exp. +0.4%.
• 14:00 Federal Chairman Bernard Bernanke Testifies.
• 14:00 NAHB Housing Market Index. Exp. 30 points.
• 17:15 FOMC Member Sandra Pianalto Speaks.

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

EUR/USD Sentiment

• Weak US data raises QE3 rumors: The markets are abuzz about the possibility of QE3 following  another weak US reading. Retail Sales dropped  by 0.5%,  surprising the markets which had forecast  a modest  0.1% gain.  This  key  indicator of  consumer spending  has now dropped for  a fourth straight month, something which hasn’t occurred since 2008.  Bernanke will be testifying  Tuesday and Wednesday  before the US Senate Banking Committee, and the markets will be on edge, waiting to see if the Fed hints at taking any monetary action. For the time being, Operation Twist is as far as the Fed is willing to go, unless the US economy weakens.
• US consumer confidence falls: For the second consecutive month,the highly respected UoM Consumer Sentiment dropped, and was also below market expectations. The indicator came in at 72.0 points, disappointing the markets, which had predicted a reading of 73.5 points. Together with Monday’s disappointing Retail Sales release, the US recovery appears to be moving very slowly.
• Germany not immune from Euro-zone contagion: It’s no secret that Germany continues to be the workhorse of the Euro-zone economy, and in return, Berlin often calls the shots regarding financial matters, such as  setting the  bailout terms for  the weaker members. However, there are increasing signs that the troubles plaguing the EZ are hurting the German economy. This includes a host of weak German economic data, diminishing confidence in the economy, and weak global growth. A Germany in decline could spell disaster for the struggling Euro-zone.
• China GDP slumps: Chinese GDP climbed up 7.6%, a bit lower than the market forecast of 7.7%. Although this figure is huge compared to the growth numbers in Western countries, the reading underscores a worrying trend. It is the ninth consecutive drop in China’s GDP, dating back to July 2010. However, traders should always treat this indicator with caution, as there are numerous reasons to be skeptical about the accuracy of these releases. The fact that the China may be manipulating its key economic releases may only exacerbate market fears of a slowdown in the world’s number 2 economy.
• Italy’s credit rating drops: There was more bad news for Italy’s slumping economy, as Moody’s lowered Italy’s credit rating by two notches to near-junk status late last week. The rating agency cited Italy’s higher borrowing costs, weak growth, and the risk of contagion from Greece and Spain.With soaring debt costs and a contracting GDP, Italy may ask for a bailout sooner rather than later.
• Spain  introduces tough austerity program: The Spanish economy is in bad shape, with an ailing bank sector, declining growth and a staggering unemployment rate of over 24%. Under strong pressure from the EU, the government  has introduced  a EUR 65 billion austerity plan, which includes a sales tax hike and slashing government expenditures, including cuts in unemployment benefits.The announcement has already drawn sharp criticism inside the country, and many analysts feel that these measures will only prolong Spain’s recession.