EUR/USD Oct. 26 – Weaker After Mixed US Data

EUR/USD is lower after yesterday’s (Oct. 25th) US releases, which were a mixed bag. US Core Durable Goods posted its highest increase since January, with a healthy 2.0% gain. Unemployment Claims was very close to the estimate, while Pending Home Sales fell  well below the forecast. The euro has not had a good week, as Euro-zone PMIs and other releases were quite disappointing for the most part. However, there was some good news this morning, as GfK German Consumer Climate looked sharp. The trading week wraps up with several US releases, highlighted by US Advance GDP. The markets are expecting  a rise in GDP for the Q3 reading.

Here’s an update about technical lines, fundamental indicators and sentiment regarding EUR/USD.

EUR/USD Technical

• Asian session: Euro/dollar traded around 1.2930, after touching a low of 1.2916. The pair is dropping in the European session, as it tests the 1.29 line.
• Current range: 1.29 to 1.2960.

Further levels in both directions:  

• Below: 1.29, 1.2814, 1.2750, 1.2670, 1.2624 and 1.2587.
• Above: 1.2960, 1.30, 1.3060, 1.3105, 1.3170, 1.3290, 1.34, 1.3437 and 1.3480.
• 1.2960 is back in a resistance role. 1.30 is the next line on the upside.
• 1.29 is being tested as the pair weakens. 1.2814 is the next support line.

Euro/dollar lower after mixed US data– click on the graph to enlarge.

EUR/USD Fundamentals

• 6:00 GfK German Consumer Climate. Exp. 5.9 points. Actual 6.3 points.
• 6:00 German Import Prices. Exp.-0.3%. Actual -0.7%.
• 7:00 Spanish Unemployment Rate. Exp. 25.2%. Actual 25.0%.
• 12:30 US Advance GDP. Exp. +1.9%.  See how to trade this event with EUR/USD.
• 12:30 US Advance GDP Price Index. Exp. +2.0%.
• 13:55 Revised UoM Consumer Sentiment. Exp. 82.7 points.
• 13:55 Revised UoM Inflation Expectations.

EUR/USD Sentiment

• No Surprises from Fed: Analysts were closely watching this week’s Federal Reserve Policy Meeting, which was the first since the Fed implemented its Q3 stimulus program. The Fed report was generally positive, stating that the economy is improving slowly, but also noting that job growth remains slow and high unemployment rate remains a concern. Operation Twist will continue until the end of 2012 and the QE3 continues at the pace of $40 billion per month. As expected, there was no change to the Federal Funds Rate of 0%-025%, and the Fed expects to maintain this level to 2015.
• Rumor of deal on Greek Debt: The markets are abuzz over reports of a leaked draft agreement between Greece and the troika. According to the agreement, there would be an extension of two more years to reach a primary surplus, which would likely be 4.5% of Greece’s GDP. In return, Greece would continue implementing structural reforms, including raising the retirement age from 65 to 67. The deal would allow Greece to receive the next installment of aid, in the amount of 31.5 billion euros. Talks between Greece and the troika have dragged on for months, so any news of a dramatic breakthrough should be taken with more than a grain of salt. However, if the media reports are indeed legitimate, we could see a strong rally by the euro, which has looked shaky.
• Weak German releases continue: The markets were hit with disappointing PMI numbers out of  Germany indicating weakness in the manufacturing and services sectors. Adding to the bad news, the German Ifo Business Climate dropped to its lowest level since March 2010. The weak German numbers are likely to exacerbate market jitters over the health of the German economy, and with mounting financial problems at home, the German government will be less than enthusiastic about coughing up more funds for Greece and Spain.
• Moody’s downgrades Spanish Regions: The Moody’s credit rating agency, which surprised the markets last week when it maintained Spain’s rating, brought down the gauntlet on Catalonia and four other regions – Andalucia, Castilla-La Mancha, Catalunya and Murcia. Moody’s cited poor liquidity and the huge debt problems that these regions are facing. The downgrade is another headache for the Spanish central government, and is sure to weigh on the euro. As expected, the unemployment rate hit another record, rising slightly to a whopping 25%. Analysts say the numbers could get even worse, as the government implements further austerity measures.
• EU Summit focuses on Bank Commissioner for Euro-zone: At last week’s EU Summit, the severe debt crises engulfing Greece and Spain were barely mentioned, to the dismay of the markets. Instead, the EU leaders focused on plans to move forward with the creation of a single European banking supervisory authority. However, the plan, which would represent an important step in European financial integration, is vague on key details, such as when the commission would commence its work. Under the initiative, the Euro bank commissioner would be responsible for all 6,000 banks in the Euro-zone. ECB policymaker Joerg Asmussen has come out in favor of the idea. Meanwhile German Finance Minister Wolfgang Schaeuble went a step further, stating that the EU needs a new “currency commissioner”, who would have the power to reject national budgets which failed to meet the zone’s strict fiscal rules.