EUR/USD Dec 14 – Under Pressure as Greece Aid Starts

EUR/USD is under pressure in Friday’s European session. The euro has edged downwards, but has enjoyed a superb week, and has gained close to two cents against the greenback. In Brussels, Eurozone finance ministers agreed, after weeks of difficult negotiations, to release the second installment of bailout funds to Greece. The first tranche, worth 34.3 billion euros, will be released in the next few days.  The markets continue to digest the Federal Reserve’s announcement that it is introducing another round of quantitative easing (QE4). Under this program, the Fed will purchase an additional 45 billion dollars per month in Treasury holdings in order to boost the US economy. The markets will be busy on Friday, with an unusually large number of releases in both Europe and the US. European PMI data was mostly within expectations, but German Flash Manufacturing PMI, a key release, disappointed, as it fell below the estimate. In the US, today’s highlight is US Core CPI.

EUR/USD Technical

• Asian session: Euro/dollar was higher, as the pair climbed above the 1.31 line. The pair is unchanged in the European sesssion.
• Current range: 1.3080 to 1.31.

Further levels in both directions: 

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

Euro/dollar higher as Eurogroup releases Greek aid – click on the graph to enlarge.

EUR/USD Fundamentals

• 8:00 French Flash Manufacturing PMI. Exp. 44.9 points. Actual 44.6 points.
• 8:00 French Flash Services PMI. Exp. 45.8 points. Actual 46.0 points.
• 8:30 German Flash Manufacturing PMI. Exp. 47.1 points. Actual 46.3 points.
• 8:30 German Flash Services PMI. Exp. 50.0 points. Actual 52.1 points.
• 9:00 Eurozone Flash Manufacturing PMI. Exp. 46.6 points. Actual 46.3 points.
• 9:00 Eurozone Flash Services PMI. Exp. 47.0 points. Actual 57.8 points.
• 10:00 Eurozone Employment Change. Exp. 0.0%. Actual -0.2%.
• 10:00 Eurozone CPI. Exp. +2.2%. Actual +2.2%.
• 10:00 Eurozone Core CPI. Exp. +1.5%. Actual +1.4%.
• All Day: EU Economic Summit (Day 2).
• 13:30 US Core CPI. Exp. +0.2%.
• 13:30 US CPI. Exp. -0.2%.
• 14:00 US Flash Manufacturing PMI. Exp. 52.6 points.
• 14:15 US Capacity Utilization Rate. Exp. 77.9%.
• 14:15 US Industrial Production. Exp. +0.3%.

For more events and lines, see the EUR/USD

EUR/USD Sentiment

• Eurogroup gives nod to Greek aid: At a meeting in Brussels on Thursday, the Eurogroup approved the release of the second installment of the Greek bailout, following the successful completion of the Greek government’s debt buyback program. The EFSF will release a total amount of 49. 1 billion euros, which will be paid out in several installments. Greece is slated to receive 34.3 billion in the next few days, and the remaining funds by March 2013. The buyback program and next tranche of aid are important milestones in putting Greece’s financial house back in order. Greece’s debt to GDP ratio is expected to improve dramatically, falling to 124 per cent by 2020.
• Federal Reserve Announces Q4: As widely expected, the Federal Reserve announced that it would implement QE4, a further round of monetary easing. The Fed is hoping that this step will bolster the US economy, which is recovering more slowly than expected. Under Q4, the Fed will purchase 45 billion dollars per month in Treasury holdings. This is in addition to the $40 billion that the Fed has been buying in mortgage backed securities under Q3. Operation Twist, in which the Fed swapped short-term Treasuries for longer term U.S. government debt, will be phased out at the end of December. The Federal Reserve also announced that it will maintain the benchmark interest rate at 0%-0.25%. The currency markets reacted quickly after Q4, and the dollar was broadly weaker against the major currencies, with the euro making some gains against the greenback.
• ECB to Supervise Eurozone banks: European finance ministers reached a deal on Thursday, whereby the ECB will become the single supervisor for the 200 largest banks in the Eurozone. The move aims to achieve closer financial integration and help protect the euro from future financial crises, which have rocked the Eurozone. Under the agreement, struggling banks would be able to receive emergency funds directly from the ESM. If all goes smoothly, the ECB should begin its new role no later than January 2014.
• Eurozone numbers a mixed bag: Eurozone numbers continue to zigzag, making predictions about the direction and health of the zone a tricky task. Earlier in the week, German and Euro-zone Economic Sentiment releases looked sharp, a both indices crossed into positive territory, indicating positive sentiment. However, French, Italian and Eurozone Industrial Production were all well below the forecast, pointing to ongoing weakness in the manufacturing sector. As well German Flash Manufacturing PMI fell below the estimate, and continues to point to contraction. With countries like Greece, Italy and Spain all struggling, the Eurozone’s road to recovery promises be a bumpy one.
• Sides remain far apart over fiscal cliff: Republicans and Democrats continue to bicker and trade accusations as the fiscal cliff crisis continues. The Democrats have lowered their demand for $1.6 trillion in additional taxes to $1.4 trillion, but the Republicans have offered just $800 billion in new tax revenue. The Republicans want more spending cuts and tax reform measures, while the Democrats are pushing for tax hikes on the wealthy. We can expect the squabbling to continue, but in the end, some compromise or stop-gap measure is likely to be reached.

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