EUR/USD July 16 – Advancing nicely despite mediocre data

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EUR/USD Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar.EUR/USD made an upwards move and is climbing above resistance at 1.31. An early bounce from this line didn’t go too far, despite a somewhat weaker than expected ZEW Economic Sentiment figure from Germany. What is the next move of the common currency? Technical and fundamental analysts are divided. Key inflation data from the US later in the day could determine the timing of QE tapering.

EUR/USD Technical

• Asian session: Euro/dollar traded quietly around 1.3060 and then moved towards 1.31, but without success. The German data sent it towards support at 1.3050, but another move sends the pair higher.

Current range: 1.31 to 1.3160

Further levels in both directions:

• Below: 1.3050, 1.30, 1.2940, 1.2890, 1.2840, 1.28, 1.2750, 1.27, 1.2660 and 1.26.
• Above: 1.3100, 1.3160, 1.32, 1.3255, 1.3350 and 1.34.
• 1.30 continues to provide weak support. 1.2940 is next.
• On the upside, 1.31 certainly proved its strength..

EUR/USD makes modest gains – click on the graph to enlarge.

EUR/USD Fundamentals

• 9:00 German ZEW Economic Sentiment, exp. 39.8, actual 36.3.
• 9:00 Euro-zone ZEW Economic Sentiment, exp. 31.8, actual 32.8 points.
• 9:00 Euro-zone CPI, exp. 1.6%, actual 1.6%. Core CPI exp. 1.2% actual 1.2%.
• 9:00 Euro-zone trade balance: exp. 15.8, actual 14.6 billion.
• 12:30 US CPI: exp. +0.3%, core exp. +0.2%.
• 13:00 US TIC Long Term Purchases, exp. 14.3 billion.
• 13:15 US Industrial output, exp. +0.2%.
• 13:15 US Capacity Utilization Rate, exp. 77.8%.
• 14:00 US NAHB Housing Market Index, exp. 51 points.
• 18:15 US FOMC member Esther George talks. She is a hawk.

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

EUR/USD Sentiment

• Mediocre German data: The early ZEW figures showed another month of positive numbers, but the figure fell from the previous month and fell below expectations. Also the trade balance surplus, one of the euro’s stronger points, unexpectedly squeezed.
• Spain in political crisis: Another issue that the euro tends to ignore for now is the political crisis in Spain. The ex-treasurer of the ruling PP party has testified that he paid PM Rajoy and other members nice sums from a slush fund, that was funded by various companies. The scandal has been in the press for months, but now it has reached a climate. If the euro-zone’s fourth largest economy finds itself in a political turmoil, this could hit the euro.
• Bernanke still weighs on the dollar: After the FOMC minutes were released, 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 shed new light, and wasn’t asked about the tapering of QE. It’s either that the market is pricing it in, or that it was an opportunity for covering dollar longs. We might get more clarity from Bernanke on Wednesday, when he testifies.
• US inflation could push back tapering: One of the topics that Bernanke didn’t mention too strongly 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.
• 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.