EUR/USD has posted some gains on Monday, and the euro is holding its own, as the pair trades in the high-1.28 range. Today’s only Eurozone release is German PPI, which fell below expectations, as the trend of weak German numbers continues. In the US, it’s another quiet day, with no fundamentals being released. However, the markets will get a chance to hear Treasury Secretary Jack Lew as well as two members of the FOMC. The markets are keeping a close as on the US Federal Reserve, which on Wednesday will release the minutes of its most recent policy meeting.
The markets were treated to a host of US releases last week, and for the most part, they didn’t like what they saw. US Inflation and manufacturing numbers fell below expectations, and housing numbers were also weak. Unemployment Claims, one of the most important releases and often a market-mover, had looked impressive in recent readings. However, the key indicator couldn’t keep pace last week, as the number of new claims jumped to 360 thousand, much higher than the estimate of 332 thousand. There was some good news from Building Permits, which were up nicely. On Friday, there was some relief from UoM Consumer Sentiment which jumped from 72.3 points to 83.7 points. This was well above the estimate of 77.9 points, and points to a sharp increase in consumer confidence. However, the host of weak US numbers we saw last week will again bring into question the extent of the US recovery, which has not been able to demonstrate sustained growth and continuous positive releases. The US will release Existing Home Sales on Wednesday, the first major release of the week.
Meanwhile, the Eurozone continues to struggle, with many of the major economies suffering from recession. Germany, considered the locomotive of the Eurozone train, is also having a tough time of it, as underscored by last week’s disappointing data. 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 didn’t start off very well, as the German Producer Price Index posted its third straight decline, dropping 0.2%. The estimate stood at -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.
The Federal Reserve has not been in the spotlight recently, but that could change if the Fed modifies its current round of quantitative easing, which involves the purchase of $85 billion in assets each month. The Fed will be tempted to act if it feels that the US recovery has gained more traction, giving it some room to ease up on QE. Last week, John Williams, president of the Federal Reserve Bank of San Francisco, stated that the Fed could begin reducing QE this summer and terminate bond buying late in 2013. As the QE program is dollar negative, any moves by the Fed to wind up QE would be bullish for the dollar at the expense of the euro. So traders can expect any new developments (real or rumor) regarding QE to impact on the currency markets. We should get a better idea of where the Fed stands on Wednesday, when the minutes of the FOMC’s last policy meeting, and Fed chairman Bernard Bernanke testifies before Congress. 
EUR/USD May 21 at 10:05 GMT
EUR/USD 1.2871 H: 1.2901 L: 1.2854
EUR/USD is not making much noise, as the pair continues to trade in the high-1.28 range. The pair is facing weak resistance at 1.2880. This line was breached in the Asian session, and could face further activity. There is a stronger support level at 1.2960. On the downside, there is support at 1.2790. This line has strengthened as the euro has moved higher on Monday. This is followed by a support level at 1.2689.
- Current range: 1.2790 to 1.2880
- Below: 1.2790, 1.2689, 1.2589 and 1.2500
- Above: 1.2880, 1.2960, 1.3000, 1.3050, and 1.31
EUR/USD ratio continues to show movement towards short positions, continuing the trend we saw on Monday. Currently, this is not reflected in the pair, which has edged higher this week. The ratio is now close to an even split, indicating a split among traders as to what to expect next from the pair.
EUR/USD is steady, as it trades close to the 1.29 line. We could see the pair drift today, with little in the way of numbers today. Wednesday should be busier, with key US housing data and the Federal Reserve releasing minutes of its last policy meeting.
EUR/USD Fundamentals
- 6:00 German PPI. Estimate -0.1%. Actual -0.2%.
- 14:00 US Treasury Secretary Jack Lew Speaks.
- 15:30 US FOMC Member James Bullard Speaks.
- 17:00 US FOMC Member William Dudley Speaks.