EUR/USD Oct. 30 – Slight Gains in Thin Trading

EUR/USD was marked by thin trading yesterday (October 29th), as Hurricane Sandy made landfall and slammed the US northeast coast, causing major floods and severe damage in its wake. Over in Europe, the ongoing crises in Greece and Spain continue to unnerve the markets. Media reports that a deal has been reached between the Greek government and the troika proved to be premature. In Spain, the government has given no indication that it will request an aid package, despite the worsening economic problems the country is facing. In economic news, German Unemployment Claims was much higher than forecast, as the bad news out of Germany  continues. Today’s highlight is the Italian 10-year Bond Auction. 

Here’s an update about technical lines, fundamental indicators and sentiment regarding EUR/USD.

EUR/USD Technical

• Asian session: Euro/dollar traded around 1.2910. In the European session, the pair has edged higher.
• Current range: 1.29 to 1.2960.

Further levels in both directions:  

• Below: 1.29, 1.2814, 1.2750, 1.2670, 1.2624 and 1.2587.
• Above: 1.2960, 1.30, 1.3060, 1.3105, 1.3170, 1.3290, 1.34, 1.3437 and 1.3480.
• 1.2960 is providing weak resistance. 1.30 is the next line on the upside.
• 1.29 continues to provide support.

Euro/dollar edges higher in thin trading– click on the graph to enlarge.

EUR/USD Fundamentals

• 8:00 ECB President Mario Draghi Speaks in Frankfurt.
• 8:00 Spanish Flash GDP. Exp. -0.4%. Actual -0.3%.
• 8:55 German Unemployment Change. Exp. +10K. Actual +20K.
• 9:10 Euro-zone Retail PMI.
• Tentative: Italian 10-year Bond Auction.
• 13:00 S&P/CS Composite-20 HPI. Exp. +1.9%.
• Postponed: US CB Consumer Confidence. Exp. 72.4 points.
• Cancelled: FOMC Member William Dudley Speaks.

EUR/USD Sentiment

• Hurricane Sandy slams New York, East Coast: Hurricane Sandy -slammed the US northeast on Monday, causing severe flooding and damage in the billions of dollars. A state of emergency has been declared in nine US states, and the megastorm has knocked out power to at least 5.7 million people. Sandy has paralyzed New York City and the surrounding areas, and the New York transit system and stock exchanges remain shut down. Although the currency markets are open, traders can expect another day of thin trading due to the weather emergency. The storm is also taking its toll on the US election campaign, as both President Barak Obama and Republican contender Mitt Romney have suspended campaigning.
• Greece, troika at impasse: There is disappointment and frustration in the markets as reports over a deal between Greece and its international lenders made for big headlines but little more. It is clear that Greece will miss it debt to GDP target of 125% by 2020 Greece will miss it debt to GDP target of 125% by 2020. So what happens now? There are several scenarios that could play themselves out, including a “haircut” for Greece’s lenders, or further austerity measures by the Greek government. However, there is strong opposition within Greece to further cost-cutting measures, and we could see an ugly showdown between Greece and the troika if matters are not resolved soon.
• Spain dawdles on bailout: Unemployment rate hit another record, rising slightly to a whopping 25%. Flash GDP declined for the fourth straight quarter, dropping by 0.3% in Q3. Yet,  despite the worsening economy, PM Mariano Ramoy appears in no rush to ask for an aid package, stating that he would request a bailout “when I think it is in the interests of Spain”. The continuing uncertainty promises to keep Spain in the headlines, sour market sentiment and put pressure on the euro.
• German economy weakening: German data continues to look sluggish. Last week, the markets were greeted with disappointing PMI manufacturing and services. As well, German Ifo Business Climate dropped to its lowest level since March 2010. The bad news is continuing as German CPI remained stuck at an unimpressive 0.0%, and German Unemployment Claims jumped to their highest level in over three years. The weak German numbers are likely to exacerbate market jitters over the health of the German economy. With mounting economic problems at home, the German government will be in no mood to cough up more funds for Greece and Spain.
• Fed cautiously optimistic over US economy: Last week’s Federal Reserve Policy Meeting was the first since the Fed implemented its Q3 stimulus program. The Fed report was generally positive, stating that the economy is improving slowly, but also noting that job growth remains slow and high unemployment rate remains a concern. Operation Twist will continue until the end of 2012 and the QE3 continues at the pace of $40 billion per month. As expected, there was no change to the Federal Funds Rate of 0%-025%, and the Fed expects to maintain this level to 2015.

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