EUR/USD has settled down in Wednesday trading, trying to consolidate the gains of over 100 points that we saw on Tuesday. The pair is trading in the mid-1.31 range in the European session. On Tuesday, Core CPI pointed to a gain of 0.2%, matching the forecast. German ZEW Economic Sentiment looked weak, but Eurozone Economic Sentiment posted a four-month gain. On Wednesday, the markets will be waiting for news out of Washington, as Federal Reserve head Bernard Bernanke testifies before a congressional committee. As well, the US will release Building Permits, a key event. It’s much quieter in the Eurozone, with the German 10-year bond yield the only event on the calendar.
Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar.
- Asian session: Euro/dollar edged lower, consolidating around 1.3130. The pair has moved up slightly in the European session, trading around 1.3150.
Current range: 1.31 to 1.3160.
- Below: 1.31, 1.3050, 1.30, 1.2940, 1.2890, 1.2840, 1.28, 1.2750, 1.27, 1.2660 and 1.26.
- Above: 1.3160, 1.32, 1.3255, 1.3350 and 1.34.
- 1.31 is again providing weak support. 1.3050 is next.
- On the upside, 1.3160 is under pressure. The round number of 1.32 follows.
EUR/USD settles down after sharp gains on Tuesday – click on the graph to enlarge.
- 9:32 German 10-year Bond Auction, actual 1.57%.
- 12:30 US Building Permits, exp. 1.00M.
- 12:30 US Housing Starts, exp. 0.96M.
- 14:00 US Fed Chairman Bernard Bernanke Speaks. Bernanke will testify before the House Financial Services Committee, in Washington.
- 14:30 US Crude Oil Inventories, exp. -1.9M.
- 16:30 US Federal Reserve Governor Sarah Bloom Raskin Speaks.
- 18:00 US Beige Book.
For more events and lines, see the Euro to dollar forecast.
- Markets Eye Bernanke: After the FOMC minutes were released last week, Fed Reserve chairman Ben 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. Bernanke didn’t really add anything new and didn’t address the tapering of QE. It’s either that the market is pricing it in, or that it was an opportunity for covering dollar longs. Bernanke will be testifying on Wednesday before the House Financial Services Committee about the Semiannual Monetary Policy Report. If Bernanke hints about the timing of QE tapering, the markets could react sharply.
- US inflation could push back tapering: One of the topics that Bernanke didn’t mention too strongly in his recent statement was inflation. The intent to taper bond buys while inflation is falling caused FOMC member James Bullard to dissent. If inflation falls below 1%, it will be hard to move forward on tapering in September.
- German data disappoints: German ZEW Economic Sentiment is one of the most important German releases and often moves the markets. The indicator fell below expectations, but Eurozone ZEW Economic Sentiment moved higher. Also the trade balance surplus, one of the euro’s stronger points, unexpectedly narrowed. The euro managed to post sharp gains despite the weak releases, gaining over one cent against the dollar. However, recent German numbers have been mixed, and the health of the Eurozone’s largest economy remains a source of concern.
- Spain in political crisis: Spain never seems to be too far from the headlines, as the country has its fair share and more of political and economic challenges. This time it’s a political scandal which has made its way to the very top, potentially implicating Prime Minister Mariano Rajoy. The ex-treasurer of the ruling PP party has testified that he paid Rajoy and other members substantial sums from a slush fund that was funded by various companies. The scandal has been in the press for months, and is intensifying. The crisis could throw the country into turmoil, and do some damage to the euro.
- ECB says low rates to continue: Most ECB members repeated the stance that rates could remain low for a long time, or even move lower. A negative deposit rate is still on the cards. However, German ECB members differ. While Bundesbank chief Jens Weidmann said that low rates are bad for the euro, his colleague Asmussen said that the extended period of time is more than 12 months. He later backtracked. In any case, the sentiment is dovish regarding rates.
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