EUR/USD was slightly lower following disappointing data out of the US on Thursday. It was three strikes yesterday, as Unemployment Claims, Existing Home Sales and the Philly Fed Manufacturing Index were all well below the market forecast. Will the euro benefit from these poor results, or will investors respond by seeking the safe haven of the US dollar? Euro-zone finance ministers will hold a video conference on Friday to discuss the bailout package for Spain. German PPI declined for a second straight month, raising more concerns about the health of the German economy.
EUR/USD Technicals
- Asian session: Euro/dollar was quiet, with the pair trading in the 1.260 range. The pair is unchanged in the European session.
- Current range: 1.22 to 1.2280.
Further levels in both directions: 
- Below: 1.22, 1.2150, 1.20 and 1.1876.
- Above: 1.2280, 1.2330, 1.2360, 1.24, 1.2440, 1.2520 and 1.2624.
- 1.2280 is providing weak resistance, with 1.2330 the next strong resistance line.
- 1.22 is only a minor line before the clear historic separator of 1.2150.
Euro/Dollar down after weak key US data – click on the graph to enlarge.
EUR/USD Fundamentals
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6:00 German PPI. Exp. -02%. Actual -0.4%.
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All Day: Eurogroup Meetings.
For more events and lines, see the Euro to dollar forecast
EUR/USD Sentiment
- US churns out weak data: The US continued to produce weak data, as there was a host of bad news on Thursday. Unemployment claims jumped, Existing Home Sales hit a two-year low, and the Philly Fed Manufacturing Index fell below the market estimate. Clearly, the US road to recovery continues to be a slow and bumpy one. Although EUR/USD has not made any major moves in response to the weak data, we could see the pair break out next week as the markets digest the news.
- Eurogroup meets again, Germany unhappy: Euro-zone finance ministers will hold a video conference on Friday and follow up on their previous meeting earlier this month. The main issue on the agenda is the rescue package for Spain and how to help prop up the country’s anemic banking sector. In a sign of German frustration and weariness with the ongoing debt crisis in the EZ, German Finance Minister Wolfgang Schauble stated that Spain’s government, rather than the country’s banking sector, should be responsible for the European bailout. This seems to fly against the announcement at the recent EU Summit that the ESM, a permanent rescue fund, would provide emergency funds for a direct bank recapitalisation of Spanish banks. Just to complicate things further, the ESM cannot begin to operate without German approval, and German courts are now adjudicating the matter.
- Fed stays on the sidelines: The markets were hoping that weak US data might cause the Fed to take action, but again, Bernanke disappointed, opting to stay on the sidelines. In his testimony to the Senate Banking Committee on Tuesday, Bernanke acknowledged that the unemployment was unlikely to improve and that the economic recovery was “fragile”. He repeated that the Fed was prepared to act, but gave no details. It appears there will be no QE in the near future, and Operation Twist is as far as the Fed is willing to go, at least for the time being.
- Is Germany catching the Euro-zone cold?: 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. The Euro lost ground following Chancellor Angela Merkel’s remarks that she was uncertain if the Euro-zone would be successful. Although she did say she was “optimistic”, her statements were enough to spook the already nervous markets.
- Italy next for bailout?: The Euro-zone’s third largest economy is plagued by soaring borrowing costs, declining growth and the risk of contagion from Greece and Spain. Adding to the woes, the Moody’s credit agency lowered Italy’s credit rating last week. With this mountain of trouble, Italy may ask for a bailout sooner rather than later.
- Spain’s economy in deep trouble: Spanish borrowing costs continue to alarm the markets. Following Thursday’s government bond auction, the yield on 10-year bonds jumped to 7.02%, above the critical 7% threshold which analysts consider unsustainable. The country has a staggering 24% unemployment rate, and has just introduced a deeply unpopular austerity program. As well, questions and concerns remain with regard to the Spanish bailout.
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