EUR/USD Feb. 28 – Breaks to 2 month high above 1.38 on strong inflation numbers

EUR/USD is screaming higher after stronger than expected inflation numbers. CPI is at 0.8% and core CPI at 1%. Strong German numbers gave the euro early support, but reports about a Russian invasion of the Crimea peninsula weigh. As implications for the ECB decision are digested, the focus moves again to the US with the second estimate of GDP and other important indicators. A strong end to the week and month are awaited.

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

EUR/USD Technical

• EUR/USD remained stable on high ground after rising in the previous US session.

Current range: 1.38 to 1.3832.

Further levels in both directions:

• Below: 1.3773, 1.37, 1.3650, 1.3580, 1.3515, 1.3450 and 1.34
• Above: 1.3830, 1.3895, 13915 and 1.40 and 1.4214.
• 1,3830 is strong resistance.
• The previous double top of 1.3773 turns to support.

EUR/USD Fundamentals

• 7:00 German Retail Sales. Exp. +1.2%, actual +2.5%. 
• 7:45 French Consumer Spending. Exp. -0.8%. Actual -2.1%.
• 9:00 Italian unemployment rate. Exp. 12.7%, actual 12.9%.
• 10:00 Euro-zone CPI Flash Estimate. Exp. +0.7%. Actual +0.8%. Core CPI +1%. Big euro rally.
• 10:00 Euro-zone unemployment rate. Exp. 12%.
• 10:00 Italian CPI. Exp. +0.5%.
• 10:00 FOMC member Richard Fisher talks.
• 13:30 US GDP (second estimate). Exp. +2.6%.
• 14:45 US Chicago PMI. Exp. 57.9 points.
• 14:55 US UoM Consumer Sentiment. Exp. 57.9 points.
• 15:00 US Pending home sales. Exp. 2.9%.
• 15:15 US FOMC members Narayana Kocherlakota and  Jeremy Stein talk.

*All times are GMT

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

EUR/USD Sentiment

• Breathing room for the ECB: The big surprise seems to have shelved plans for a negative deposit rate. With core inflation at 1%, Draghi can fend off criticism. ECB Governing Council member Ignazio Visco said that a negative deposit rate is on the agenda in the upcoming March meeting (currently the rate is at 0%). While the ECB may not take action, this comment certainly weighed on the euro. It joins similar sentiments out of the ECB and some complaints about the euro’s strength from the head of the Eurogroup.
• Russian invasion of the Ukraine?: There are reports that the Russian army captured airports in the Crimea peninsula. This lifts tensions once again, after things have already seemed to have calmed. There are reports of long lines to withdraw money in the Ukraine, and foreign reserves are running low. The Ukrainian Hryvna (UAH) has dropped in value, with USD/UAH almost reaching 10 and EUR/UAH around 13.60. The Ukraine has a lot of outstanding debt and a default could have serious contagion effects. Russian gas flows through the Ukraine to central Europe. So, events in this country are certainly relevant for the euro-zone and they already caused a loss of uptrend support.
• Germany leading the pack: German retail sales rose by 2.5%, calming fears seen in the previous months. The number of unemployed in the euro-zone’s locomotive also fell more than expected and this joins the strong German GfK Consumer Confidence that reached 8.5 points, its highest level since January 2007. and the upbeat German Ifo Business Climate, which also posted a multi-year high. Germany is certainly doing well, but others are lagging behind.
• US data improves: A nasty streak of weak US releases ended on Wednesday as New Home Sales jumped by 468 thousand much better than expected. Another positive figure came from durable goods orders, and especially the core numbers. The focus is now on GDP, which is expected to be revised to the downside, from 3.2% to 2.6%.
• Federal Reserve may adjust forward guidance: Janet Yellen acknowledged the slowdown in the US economy but did not hint about any change in QE tapering. However, forward guidance could certainly be adjusted if the unemployment rate continues falling. The meeting minutes indicated that interest rates are unlikely to rise, even if unemployment drops to 6.5%. 

Read More

Dollar broadly lower vs. rivals after positive euro zone data

The dollar was broadly lower against the other major currencies on Friday, as the release of positive euro zone economic reports supported demand for the single currency, while demand for the greenback remained under ahead of a report on economic growth in the U.S.

Dollar drops vs. rivals on euro zone data

The dollar was lower against the euro, with EUR/USD up 0.61% to 1.3793.

Preliminary data showed that consumer price inflation in the euro zone remained unchanged at an annualized rate of 0.8% in February, compared for expectations for a downtick to 0.7%.

A separate report showed that the unemployment rate in the single currency bloc remained unchanged at 12% in January, in line with expectations.

The positive data eased speculation that the European Central Bank could cut interest rates at its policy meeting next week.

Earlier in the day, official data showed that German retail sales rose 2.5% last month, exceeding expectations for a 1% increase. Retail sales in December were revised to a 2.1% drop from a previously estimated 2.5% decline.

A report also showed that French consumer spending dropped 2.1% in January, compared to expectations for a 0.2% rise. Consumer spending in December was revised up to a 0.2% increase from a previously estimated 0.1% slip.

The pound was higher against the dollar, with GBP/USD rising 0.34% to 1.6745.

The Nationwide Building Society earlier said that U.K. house price inflation rose 0.6% in February, in line with expectations. In January, house price inflation was revised up to a 0.8% increase from a previously estimated 0.7% rise.

The dollar was lower against the yen and the Swiss franc, with USD/JPYslipping 0.27% to 101.83 and with USD/CHF declining 0.68% to 0.8823.

In Japan, oreliminary data showed that industrial production in Japan rose 4% in January, more than the expected 3% increase, after a 0.9% gain the previous month.

A separate report showed that retail sales in Japan rose 4.4% last month compared to a year earlier, after a 2.6% increase in December. Analysts had expected retail sales to rise 3.8% in January.

Data also showed that household spending in Japan rose at an annualized rate of 1.1% last month, beating expectations for a 0.2% uptick, after a 0.7% rise in December.

Meanwhile, Tokyo's core consumer price inflation, which excludes fresh food, rose at an annualized rate of 0.9% in February, above expectations for a 0.8% advance, after a 0.7% increase in January.

Consumer price inflation in Tokyo rose 1.1% in February from a year earlier, after a 0.7% gain the previous month.

The greenback was steady to lower against the Australian, New Zealand and Canadian dollars, with AUD/USD down 0.04% to 0.8962, NZD/USDclimbing 0.59% to 0.8418 and USD/CAD inching 0.05% higher to 1.1129.

Data showed that the ANZ business confidence index for New Zealand rose to a nearly 20-year high of 70.8 in February, from a reading of 64.1 the previous month.

The U.S. dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.54% to 79.86.

Later in the day, the U.S. was to release revised data on fourth quarter growth, as well as a report on manufacturing activity in the Chicago region, revised data on consumer sentiment and private sector data on pending home sales.

Read More