After a very quiet start to the week, the markets will be busy on Wednesday. The US Federal Reserve will also be front page and center, as the Fed releases the FOMC minutes and Bernard Bernanke testifies in front of a Congressional committee. After sustaining sharp losses, EUR/USD has posted a modest rally this week, gaining about one cent since Monday. In other economic news, the US releases Existing Home Sales, the first major event of the week. In the Eurozone, Current Account sparkled, posting its largest surplus in more than six years. German 10-year bonds will be up for auction, and the EU holds a summit in Brussels.
Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar.
EUR/USD Technical
Asian session: Euro/dollar was steady, touching a high of 1.2938, and consolidating at 1.2909. over the 1.29 line early in the session before consolidating at 1.2887. The pair has edged higher in the European session.
Current range: 1.2880 – 1.2960.
Further levels in both directions:
Below: 1.2880, 1.2805, 1.2750, 1.27, 1.2624 and 1.2587.
Above: 1.2960, 1.30, 1.3030, 1.31, 1.3160 and 1.32.
1.2880 is providing support. This line is slightly stronger as the pair trades at higher levels.
1.2960 is the next line of resistance. It could face pressure if the euro continues to push higher.
Euro trading above 1.29 line as gains continue – click on the graph to enlarge.
EUR/USD Fundamentals
8:00 EU Current Account. Exp. 14.2B. Actual 25.9B
All Day: EU Economic Summit
Tentative: German 10-year Bond Auction
14:00 US Existing Home Sales. Exp. 4.99M
14:00 US Fed Chairman Bernard Bernanke testifies before the Joint Economic Committee
All eyes on Bernanke, Fed minutes: Will the Fed taper with QE? No one has the magic answer (yet) to this critical question, but we are seeing some hints as to whether the Fed will take action. Last week, John Williams, president of the Federal Reserve Bank of San Francisco, stated that the Fed could begin reducing QE this summer and end bond buying late in 2013. The markets seem to get excited after every solid US release, with speculation rising that the Fed could take action. We should get a clearer picture later on Wednesday, as the Fed releases the minutes of the previous FOMC meeting. Also on Wednesday, Fed Chair Bernard Bernanke will testify on Capitol Hill. Any talk of change to the current QE levels of $85 billion could shake up the currency markets. In the meantime, most analysts are not predicting any changes to QE, given the shaky recovery in the US.
Where is US economy headed?: US releases have not impressed lately, and the disappointing trend continued last week.Inflation and manufacturing numbers fell below expectations, and housing data did not meet the estimate.Unemployment Claims had looked impressive in recent readings, but was well above expectations. There was better news from Building Permits, and the UoM Consumer Sentiment shot up to wrap up the week. Trying to determine the extent of the US recovery continues to be difficult, as the economy has yet to demonstrate sustained growth and produce continuous positive releases.
What’s wrong with Germany?: Germany, the largest economy in the Eurozone and the “locomotive of Europe”, churned out some unimpressive numbers last week. ZEW Economic Sentiment, one of the most important German releases, came in well below the estimate. German CPI and WPI posted declines, indicating weak activity in the economy. GDP posted a slight gain of 0.1%, but this was below the 0.3% forecast. This week hasn’t started any better, as the important PPI indicator declined for the third straight reading. The index fell 0.2%, a sharper drop than the forecast of -0.1%. If the Eurozone is to have any hope of getting back on solid economic footing, it will need Germany to lead the way and post some positive numbers. We’ll see a string of German releases later in the week, highlighted by PMIs and the German Ifo Business Climate.
Kenny Fisher - Senior Writer
A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.
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