EUR/USD Nov 16 Little Movement Despite Disappointing US Data

EUR/USD Technical

• Asian session: Euro/dollar was quiet, and consolidated around 1.2750. The pair remains steady in the European session.
• Current range: 1.2690 to 1.2750.

Further levels in both directions:  

• Below: 1.2690, 1.2624, 1.2590, 1.25, 1.2440, 1.2390, 1.2250, 1.2140 and 1.2042.
• Above: 1.2750, 1.28, 1.2880, 1.2960, 1.30, 1.3030, 1.3080, 1.3140, and 1.3170.
• 1.2750 is under pressure. 1.2690 is the next line of support.
• 1.28 is providing resistance.

Euro/dollar steady after weak US data – click on the graph to enlarge.

EUR/USD Fundamentals

• 9:00 Euro-zone Current Account. Exp. +9.2B.
• 9:00 Italian Trade Balance. Exp. -0.54B.
• 10:00 Euro-zone Trade Balance. Exp. +10.6B.
• 10:30 Deutsche Bundesbank President Jens Weidmann  Speaks.
• 14:00 US TIC Long-Term Purchases. Exp. 75.0B.
• 14:15 US Capacity Utilization Rate. Exp. 78.4%.
• 14:15 US Industrial Production. Exp. +0.2%.
• 8:45 US FOMC Dennis Lockhart Speaks.

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

EUR/USD Sentiment

• Poor US data surprises markets: We have heard a lot about the US economic recovery, but it certainly wasn’t apparent in Wednesday’s releases. The Philly Fed Manufacturing Index tumbled to -10.7 points, shocking the markets, which had predicted a small gain. Unemployment Claims shot up to 475 thousand, well above the estimate of 372K. The Empire State Manufacturing Index was slightly higher than the forecast, but remained in contraction territory for the fourth straight month. We could see the markets react to the dismal US figures next week, and EUR/USD could show some volatility. 
• IMF, EuroGroup spar over Greece: The IMF and EuroGroup are butting heads over what action to take over Greece’s long-term debt. At a meeting earlier this week, the Euro-zone finance ministers agreed to give Greece a two-year extension, until 2016, to reduce its deficit to 2% of GDP. The EuroGroup also decided to postpone a decision on the next tranche of aid until November 20. The IMF, for its part, wants another round of debt restructuring of Greece, so that the country can realistically meet the goal of 120% debt to GDP ratio by 2020. The bottom line is that the IMF want the euro-zone countries to take on the losses of Greek loans. This, of course, is unpalatable to Germany and other EZ members, and the IMF could respond by exiting the troika. Greece managed to avoid an immediate default after issuing short-term bonds. But the question of of the next tranche of aid is hanging heavy in the cold European air. With the EuroGroup meeting on Nov. 20, next week promises to be anything but dull.
• Greek parliament approves budget, but no aid so far: The Greek parliament voted Sunday to approve the government’s 2013 budget. The budget contains harsh austerity measures required for Greece to receive the next tranche of aid under the bailout package. The close vote (167-128) underscores the deep opposition to the budget, which raises taxes and the retirement age, and reduces the salaries of many public workers. Despite the vote, the troika is bickering about providing Greece with more funds, which could complicate things for the already beleaguered Greek government.
• Republicans and Democrats dig in for fiscal cliff clash: With the US election behind us,the looming fiscal cliff crisis is set to occur unless US politicians can get their act together, and soon. Fiscal cliff refers to a situation whereby tax breaks are set to expire at the same time that government spending cuts are scheduled to take place, starting at the end of 2012. Congress and President Obama will have to reach some compromise over deficit reduction, otherwise the US could be hit with a recession in 2013. Fresh from his electoral victory, President Obama has fired the opening shot, demanding that Republicans accept a plan that would raise $1.6 trillion in new taxes over the next 10 years. The Republicans are sure to reject this proposal. With both sides digging in their heels, we could be in for a nasty, protracted fight between Congress and the president.
• Greek turmoil could lead to Grexit: With Greece facing tremendous political and economic problems, the country’s membership in the Euro-zone is in jeopardy. Recent EU Summits and Euro-group meetings have not led to any breakthroughs, and an agreement on additional funds for Greece remains elusive. Both Greece and Germany may have reached their limits, and there are several other reasons why we could see a Grexit. The German economy is in trouble, and many politicians and senior officials are not happy about coughing up more funds for Greece. Is Germany playing with fire? Time is becoming more and more critical, as Greece is likely to run out of money sometime in November without further aid. The uncertainty will likely keep up pressure on the wobbly euro.
• Catalan election could fan independence drive: The government in Madrid is feeling better about itself, so much so that it has decided to only request a bailout “when the time is right”. However, the separatist winds are getting stronger, with Catalonia holding elections on November 25. The independence movement is enjoying growing support, as many Catalans are unhappy about propping up other regions will they are forced to make cuts and as the central government for aid. For its part, the central government has balked at giving Catalonia more of a say in its finances, which has only served to fan the separatist flames. If the pro-independence parties win the upcoming election, we could see a backlash from Madrid.

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