EUR/USD Dec 12 – Steady as Markets Expecting Additional

EUR/USD remains steady as the markets await a crucial policy meeting of the Federal Reserve on Wednesday. There is strong speculation that the Fed will announce another round of monetary easing in order to give a boost to the slow economic recovery. The euro has crossed above the 1.30 line, and we could see EUR/USD exhibit some volatility following the Fed Statement. Back in Europe, Eurozone Industrial Production posted its second straight decline, falling well below the estimate. 

EUR/USD Technical

• Asian session: Euro/dollar was steady, as the pair consolidated at around 1.3005. In the European session, the pair has edged higher.
• Current range: 1.30 to 1.3030.

Further levels in both directions:  

• Below: 1,30, 1.2960, 1.2880, 1.28, 1.2750, 1.2690, 1.2624, 1.2590, 1.25, 1.2440, 1.2390 and 1.2250.
• Above: 1.3030, 1.3080, 1.3130, 1.3170, 1.3290 and 1.34.
• 1.30 is providing weak support as the pair has edged higher.
• 1.3030 is the next line on upside. 1.3080 is stronger.

Euro/dollar steady as markets wait for crucial Fed policy meeting – click on the graph to enlarge.

EUR/USD Fundamentals

• 7:00 German Final CPI. Exp. -0.1%. Actual -0.1%.
• 7:45 French CPI. Exp. 0.0%. Actual -0.2%.
• All Day: ECOFIN Meetings.
• 10:00 Eurozone Industrial Production. Exp. +o.3%. Actual -1.4%.
• 13:30 US Import Prices. Exp. -0.4%.
• 15:30 US Crude Oil Inventories. Exp. -2.6M.
• 16:30 US 10-year Bond Auction.
• 17:30 US FOMC Statement.
• 17:30 US Federal Funds Rate.  Exp. <0.25%.
• 19:00 US FOMC Economic Projections.
• 19:00 US Federal Budget Balance. Exp. -160B.
• 19:15 FOMC Press Conference.

For more events and lines, see the EUR/USD

EUR/USD Sentiment

• All eyes on Federal Reserve: The markets are eagerly awaiting Wednesday’s policy-setting meeting of the Federal Reserve. With the US recovery moving slowly and the the fiscal cliff gridlock showing no signs of a resolution, the Fed could spring into action with an additional monetary stimulus package. Operation Twist is nearing its end, and the Fed could decide to purchase $30-40 billion of Treasuries, in addition to the current program of $40 billion in purchases of MBS. Fed could decide to purchase $30-40 billion of Treasuries, in addition to the current program of $40 billion in purchases of MBSThese soft spots could serve as the catalyst for further Fed intervention. Will the Fed pull the trigger on QE4? We’ll have to wait and see, as the Fed announcement could have a major impact on EUR/USD.
• Italian PM Monti announces resignation:There were dramatic events in Italy over the weekend, as Prime Minister Mario Monti announced that he will resign shortly, after losing the support of former Prime Minister Silvio Berlusconi’s party. The move means that Italians will head to the polls early next year. Monti has enjoyed some success, cracking down on tax evasion and restoring Italy’s financial credibility, which has taken a beating as a result of the Euro-zone debt crisis. However, with the Italian economy mired in a recession, the latest political events puts further pressure on the shaky euro. Monti sought to reassure nervous markets, stating that he would remain in office until the 2013 budget is passed.
• Euro Economic Sentiment numbers shines: The markets received a dose of positive news on Tuesday as German and Euro-zone Economic Sentiment releases both looked sharp in November. The indices measure the level of optimism of institutional investors and analysts, and their opinions are highly valued by the markets. ZEW German Economic Sentiment climbed to 6.9 points, the first time the key index has pushed above the zero level since May. Euro-zone Economic Sentiment was also strong, coming in at 7.6 points, a seven-month high. However, Eurozone data continues to be a mixed bag, as European Industrial Production looked weak, declining by 1.4%.
• Greece waits for more bailout funds: Greece has offered to purchase 10 billion euros of its national debt, as part of the new bailout agreement aimed at resolving the country’s severe debt crisis. Market sentiment was positive after the Greek government offered a premium on markets prices for Greek bonds. The EUR 10 billion buy-back could allow Greece to retire up to 30 billion euros worth of debt. Greece is expecting the next installment of aid on December 13, and the buy-back is scheduled to be completed by December 17. German Chancellor Angela Merkel hinted that Berlin could consider a write-off of its Greek loans. Until now, Germany has strenuously objected to a write-off of Greek debt, but may have to show more flexibility if Greece is to regain its financial footing. However, Merkel is unlikely to agree to a debt haircut, in any shape or form, prior to German elections in 2013.
• Fiscal cliff negotiations continue: Republicans and Democrats continue to battle hard over the looming fiscal cliff crisis. The Democrat proposal calls for $1.6 trillion in additional taxes over the next 10 years, with higher taxes on those earning over $250,000. The Republicans have offered $800 billion in new tax revenue from spending cuts and overhauling the tax code. However, the Republicans are split on whether to agree to higher income tax rates, and the Democrats, led by President Obama, could take advantage of the disarray in the Republican camp. The markets are hoping that the politicians will find a compromise and avoid a crisis which could threaten the fragile US recovery. Both parties are talking tough but also exchanging proposals to find some common ground and avert the looming crisis. 

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