EUR/USD Dec 18 – Rangebound Trading Continues

EUR/USD remains steady and continues to trade in a tight range. The euro is coming off last week’s strong rally, and continues to trading close to five-month highs against the US dollar. With Q4 behind us, market focus has shifted to the fiscal cliff, with intense negotiations continuing on Capitol Hill. There is no breakthrough to report, but the markets and lawmakers are hoping to reach an agreement before Christmas. There are no scheduled releases out of the Euro-zone and only two from the US, so EUR/USD could have another quiet day.

EUR/USD Technical

• Asian session: Euro/dollar was steady, as the pair consolidated at around 1.3164. The pair is unchanged in the European session.
• Current range: 1.3130 to 1.3170.

Further levels in both directions:  

<img title=”EUR USD Daily Forecast December 17″ src=”https://forexcrunch-wpengine.netdna-ssl.com/wp-content/uploads/2012/12/EUR-USD-Daily-Forecast-December-17-400×225.png” alt=”” width=”400″ height=”225″ />
<img title=”EUR USD Daily Forecast December 14″ src=”https://forexcrunch-wpengine.netdna-ssl.com/wp-content/uploads/2012/12/EUR-USD-Daily-Forecast-December-141-400×225.png” alt=”” width=”400″ height=”225″ />
<img title=”EUR USD Daily Forecast December 13″ src=”https://forexcrunch-wpengine.netdna-ssl.com/wp-content/uploads/2012/12/EUR-USD-Daily-Forecast-December-13-400×225.png” alt=”” width=”400″ height=”225″ />
<img title=”EUR_USD Technical Dec. 12″ src=”https://forexcrunch-wpengine.netdna-ssl.com/wp-content/uploads/2012/12/EUR_USD-Technical-Dec.-12-400×225.png” alt=”” width=”400″ height=”225″ />

• Below: 1.3130, 1.3110, 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: 1.3170, 1.3290, 1.34, 1.3480 and 1.36.
• 1.3170 is under pressure on the upside. 1.3290 is stronger.
• 1.3130 is the next support level.

Euro/dollar boxed in narrow range – click on the graph to enlarge.

EUR/USD Fundamentals

• 13:30 US Current Account. Exp. -105B.
• 15:00 US NAHB Housing Market Index. Exp. 47 points.

For more events and lines, see the EUR/USD

EUR/USD Sentiment

• Fed pulls trigger on QE4: The currency markets were very busy following the Federal Reserve’s  announcement that it would implement QE4, a further round of monetary easing. The US dollar has since lost ground against most of the major currencies, and the euro posted gains against the dollar, climbing to levels not seen since September. The Fed is hoping that this step will help kick-start the tepid US economy. 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.
• Republicans sweeten fiscal cliff offer: Republican House Speaker John Boehner has made the Democrats a more flexible offer, but the gridlock over the fiscal cliff continues. The Republicans have retreated on their demand not to raise taxes, but want a hike to only affect those earning more than $1 million. The Democrats are insisting on tax hikes over those earning over $250,000. Lawmakers would be happy to ink a deal before Christmas, so we can expect a busy week on Capitol Hill. If there are signs of progress, the euro will likely take advantage and make further inroads against the dollar.
• Greece receives bailout aid: After months of protracted negotiations between Athens and the troika, Greece finally received the next tranche of the bailout rescue package on Monday. The Greek finance ministry confirmed that it had received 34.3 billion euros in aid. The total amount of the bailout is about 49 billion euros, and the remaining funds will be delivered by March 2013, contingent upon Greece implementing further economic reforms. Under the agreement, Greece agreed to implement a buy-back scheme, in order to help reduce its debt. This required Greece to buy its own bonds at a deep discount. The bailout package is intended to help Greece regain its financial footing, and is certainly an important step forward as the Euro-zone deals with the crippling debt crisis.
• ECB receives wider mandate: European finance ministers reached a deal in Brussels last week, 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 will begin its new role as a “super bank commissioner” by January 2014. There have also been discussions of widening the ECB’s supervisory powers to cover EU banks which are not located in the Euro-zone.
• Eurozone economies struggling: As we approach the end of 2012, the health of the economies of the major players in the zone does not look promising. Unemployment is rampant in Greece and Spain, and Italy and France are also experiencing high unemployment. With these major economies facing small or even negative growth, there may not be a lot to cheer about in the early part of 2013. On the brighter side, there has been significant progress in the Greek debt crisis, as aid is again flowing to Athens. As well, a framework has been agreed upon concerning a greater supervisory role for the ECB, with the goal of minimizing the impact of future banking crises in the Euro-zone.

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