EUR/USD Jan 16 – Dips Below 1.33 After Juncker Remarks

EUR/USD  lost ground after Jean-Claude Juncker, head of the Euro group of finance ministers, said that the euro was too high. The pair has now dropped below the 1.33 line. In the US, retail sales numbers were strong, but manufacturing data disappointed. It is another busy day, with a host of releases out of Europe and the US, as both release important inflation data. In Italy, the country’s Trade Surplus dropped, but still came in well above expectations. Today’s key release is US Core CPI.

EUR/USD Technical

• Asian session: Euro/dollar was quiet, as the pair touched a low of 1.3273, and consolidated at 1.3278. The pair then consolidated at 1.3353. The pair has shown little movement in the European session.
• Current range: 1.3240 to 1.3290.

Further levels in both directions:  

• Below: 1.3240, 1.3170, 1.3130, 1.3110, 1,3030, 1.30, 1.2960, 1.2624 and 1.2590.
• Above: 1.3290, 1.3360, 1.34, 1.3480, 1.36, 1.3750 and 1.3838.
• 1.3290 is providing resistance, protecting the 1.33 line. 1.3360 is stronger.
• On the downside, 1.3240 is providing weak support. This line could be tested if the pair continues to weaken.

Euro/dollar loses ground after Juncker says euro too high – click on the graph to enlarge.

EUR/USD Fundamentals

• 9:00 Italian Trade Balance. Exp. 1.91B. Actual 2.36B.
• 10:00 Eurozone CPI. Exp. 2.2%.
• 10:00 Eurozone Core CPI. Exp. 1.5%.
• Tentative: German 10-year Bond Auction.
• 13:30 US Core CPI. Exp. 0.2%.
• 13:30 US CPI. Exp. 0.0%.
• 14:00 US TIC Long-Term Purchases. Exp. 19.8B.
• 14:15 US Capacity Utilization Rate. Exp. 78.6%.
• 14:15 US Industrial Production. Exp. 0.2%.
• 15:00 US NAHB Housing Market Index. Exp. 48 points.
• 13:30 US Crude Oil Inventories. Exp. 2.0M.
• 19:00 US Beige Book.

For more events and lines, see the EUR/USD

EUR/USD Sentiment

• Euro drops after Juncker Comments: If Jean-Paul Juncker wanted to shake up the currency markets, he certainly didn’t have to wait long. Speaking at an event in Luxemburg, the head of the Euro group of finance ministers bluntly stated that the “euro foreign exchange rate is dangerously high”. The markets jumped on his comments, and the euro quickly headed south, falling below the 1.33 line. Still, the continental currency has looked sharp since the ECB rate decision late last week, and has shown that it can flex some muscle against the US dollar.
• Weak Eurozone numbers could drag down euro : The euro may have started off 2013 in fine form, but the same cannot be said for the Eurozone economy. Unemployment remain stubbornly high, with the Eurozone rate stuck at 11.8%, and Greece and Spain are reeling from 25% unemployment. PMIs continue to point to contraction in the economy, and manufacturing numbers have been weak. France and Italy have imposed austerity measures to try and regain their economic footing, but any recovery promises to be slow. Even Germany, the locomotive of Europe, is in trouble, with a string of disappointing releases. If we don’t see improvement in 2013, market sentiment will tumble, and likely take the euro with it.
• German locomotive losing steam: The once mighty German economy continues to be a source of concern. Recent economic data points to serious trouble in the Eurozone’s largest economy. Trade Surplus dropped to its lowest levels since May, and German Factory Orders fell by 1.2%. German Industrial Production, an important manufacturing indicator, also looked sluggish. Although the indicator managed to push into positive territory for the first time since September, the gain was a paltry 0.2%, well below the estimate of 1.1%. For the third straight month, German WPI fell well below the market forecast. If the Eurozone is to get back on its feet later this year, it will need Germany to lead the way.
• Key US data paints mixed picture: The US released several key indicators on Tuesday, and the picture continues to be good, and bad. Retail sales numbers showed improvement, as both Core Retail Sales and Retail Sales beat their respective estimates. Retail Sales rose 0.5%, hitting a four-month high. These positive numbers were not reflected in manufacturing data, which looked very weak. The Empire State Manufacturing Index dropped -7.8 points, shocking the markets, which had anticipated a gain of 1.9 points. This important index has posted consecutive declines since July, and points to serious weakness in the US manufacturing sector.
• Bernanke Quiet on QE, sends message for Congress:  In a speech earlier this week, Fed Reserve Chair Bernard Bernanke may have disappointed some, as he did not give any clues about when the current round of QE might end. Bernanke did little more than express his concern about the speed of the US recovery. He noted that the economy has shown signs of improvement, but he was still unsatisfied with the economy’s progress. Given these  sentiments, it seems unlikely that the Fed will consider ending the current round of QE in 2013, barring a spectacular recovery by the US economy during the year. Underscoring this point, the president of the San Francisco Federal Reserve Bank, John Williams, stated that he expected the Fed to continue its bond buying program “well into the second half of 2013.” Although Bernanke avoided talking about QE, he was more forthcoming with regard to the debt ceiling issue, which is likely to be a hot topic, if not a full-blown crisis, in February. The US is quickly approaching its debt limit of $16.4 trillion, and Bernanke said Congress must act and raise the debt ceiling. He further noted that tinkering with interest rates will not make much difference, but that if Congress ensures that the country’s fiscal house is in order, interest rates would gradually rise as the economy improves.

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