EUR/USD – Steady as German Data Disappoints

EUR/USD  remains steady, as the pair continues to trade  close to  the 1.30 level.  German numbers failed to impress on Tuesday. German inflation  releases posted declines, but did manage to meet market expectations.  German ZEW Economic Sentiment, the highlight of the day, was a major disappointment, as it came in well below the estimate. Eurozone numbers fared better, as  Industrial Protection beat the forecast and ZEW Economic Sentiment  met expectations. In the US, it’s a quiet day, with just two releases.

Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar.

EUR/USD Technical

• Asian session: Euro/dollar  pushed higher crossing above the 1.30 line and touching a  high of 1.3027.  The pair consolidated at 1.3003.  Euro/dollar  is unchanged  in  the  European session.
• Current range: 1.3000 to 1.3030.

Further levels in both directions:  

• Below: 1.3000, 1.2960, 1.2880, 1.2805, 1.2750 and 1.27.
• Above: 1.3030, 1.31, 1.3160, 1.32, 1.3255, 1.3290, 1.3350 and 1.34.
• The pair is testing support at 1.3000. The next support level is 1.2960.
• On the upside,  1.3030 is providing weak resistance. This is followed by the round number of 1.31.

Euro  sticks close to  1.30  line  – click on the graph to enlarge.

EUR/USD Fundamentals

• 6:00 German Final CPI. Exp. -0.5%. Actual -0.5%.
• 6:00 German WPI. Exp. -0.3%. Actual -0.2%.
• 9:00 German ZEW Economic Sentiment. Exp. 39.5 points. Actual 36.4 points.
• 9:00 Eurozone Industrial Production. Exp. 0.6%. Actual 1.0%.
• 9:00 Eurozone ZEW Economic Sentiment. Exp. 27.3 points. Actual 27.6 points.
• All Day: ECOFIN Meetings.
• 11:30 US NFIB Small Business Index. Exp. 89.9 points.
• 12:30 US Import Prices. Exp. -0.5%.

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

EUR/USD Sentiment

• German numbers disappoint: There were three German releases on Tuesday, and the news was mostly disappointing.   Final CPI declined by 0.5%, matching the forecast. WPI came in at -0.2%, a bit better than the forecast of -0.3%. ZEW Economic Sentiment, one of the most important German releases, posted a reading of 36.4 points, way off the estimate of 39.5 points. There was better news from Eurozone releases, as Industrial Production climbed to 1.0%, bettering the estimate of 0.6%. ZEW Economic Sentiment came in at 27.6 points, edging out the forecast of 27.3 points.
• ECB considering  negative deposit rates:  We’ve seen a lot of volatility from the euro lately, and  one of the contributing factors has been comments out of the ECB regarding negative deposit rates. Essentially, this means that depositors would be charged a fee for their cash deposits  in European banks. Mario  Draghi has mentioned this idea earlier in the month, and the euro lost ground as a result. The reason? Negative deposit rates would lead to  the flow of  funds out of the Eurozone, as depositors look for a better return on their funds.  Earlier in the week, ECB member Ignazio Visco reiterated that the ECB is considering the idea. The ECB would be the first major central bank to adopt negative deposit rates. Proponents of the idea argue that it would  increase lending to businesses and help boost economic activity in the sluggish Eurozone.
• US employment picture brightens: The US has run into some trouble with recent releases, but employment numbers have been looking positive.  Last week, Unemployment Claims came in at  323 thousand new claims, well below the estimate of 333 thousand. It was the third consecutive week that Unemployment Claims has beaten expectations. This is excellent news, but the markets will want to see strong numbers from other sectors of the economy to be convinced that the US is headed in the right direction.
• Will Fed tinker with QE?: We are seeing some improvement in US data, in particular employment numbers. This has raised speculation that the Fed could scale back its QE program, in which it is purchasing $85 billion in assets every month. Winding up the QE program is dollar positive, and the US dollar was broadly  stronger against all the major  currencies on Friday.  Any hints from the Fed of ending QE would likely move the markets and send the dollar higher.