EUR/USD is fluctuating, as the pair dropped below the 1.30 level in Thursday’s Asian session. The pair has bounced back in European trading, but remains under pressure as the ECB holds a policy meeting today. The ECB is expected to hold interest rates at their current level of 0.75%. In the Eurozone, France and Spain hold a 10-year bond auction, and Germany releases Factory Orders. There are two key releases out of the US later today – Trade Balance and Unemployment Claims.
Update:Â The ECB left the rates unchanged as expected, focus on Draghi.
Update 2: Draghi Maintains Balanced Stance – EUR/USD Jumps.
Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar.
EUR/USD Technical
- Asian session: Euro/dollar touched a low of 1.2967, and then consolidated at 1.2984. In the European session, the pair is back above the 1.30 line.
- Current range: 1.3000 to 1.3030.
Further levels in both directions:Â Â 
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- Below: 1.3000, 1.2960, 1.2880, 1.2805, 1.2746, 1.27 and 1.2660.
- Above: 1.3030, 1.3100, 1.3130, 1.3170, 1.3255, 1.3290, 1.3350, 1.34 and 1.3486.
- 1.3000 is providing weak resistance and could continue to be tested.
- On the upside, the pair faces resistance at 1.3030. 1.3170 is a key line of resistance.
Euro/dollar fluctuating ahead of ECB announcement – click on the graph to enlarge.
EUR/USD Fundamentals
- 7:45 French Trade Balance. Exp. -4.8B. Actual -5.9B
- Tentative: Spanish 10-year Bond Auction
- Tentative:Â French 10-year Bond Auction
- 11:00 German Factory Orders. Exp. 0.6%
- 12:30 US Challenger Job Cuts
- 12:45 ECB Minimum Bid Rate. Exp. 0.75%
- 13:30 ECB Press Conference
- 13:30 US Trade Balance. Exp. -42.8B.
- 13:30 US Unemployment Claims. Exp. 354K
- 13:30 US Revised Nonfarm Productivity. Exp. -1.6%
- 13:30 US Revised Unit Labor Costs. Exp. 4.4%
- 15:30 US Natural Gas Storage. Exp. -135B
- 18:15 US FOMC Jerome Powell Speaks
- 20:00 US Consumer Credit. Exp. 15.2B
- 21:30 US Bank Stress Test Results
For more events and lines, see the EUR/USD
EUR/USD Sentiment
- Markets eye ECB rate announcement: The ECB meets later on Thursday to set its Minimum Bid Rate. Most analysts are expecting the central bank to maintain the current level of 0.75%. The rate has not budged since July 2012, so a cut in the rate would likely send shock waves through the financial markets. At the same, time, weak growth and unemployment figures out of the Eurozone could lead to interest rate cuts later this year. Since the expected interest rate is often priced in by the markets, it is often the accompanying press conference which is the highlight of the show (and the market-mover). Mario Draghi’s optimistic statements at recent press conferences have served to boost the euro, but will the news be as positive this time around?
- Italian political crisis continues: The political crisis is deepening in the Eurozone’s third largest economy. Center-left leader Pier Luigi Bersani has expressed his readiness to form a minority government with populist leader Beppe Grillo. Grillo, the unpredictable head of the 5 Star Movement, has so far refused to join forces with any other party, and seems content to force new elections. Parliament will sit for the first time next week, and President Giorio Napolitano is expected to begin consultations with party leaders on March 19, as efforts to sort out the political paralysis shift into high gear.
- Spain asks for breathing room to reduce deficit: At a meeting of European finance ministers earlier this week, Spain asked for more time to reduce its budget deficit. Economy Minister Luis de Guindos said Spain had lowered its deficit and restored its credibility with international credit markets. He pointed to the fact that Spain has reduced its budget deficit from 9% of GDP in 2011 to under 7% in 2012. However, this still falls well short of the EU limit of 3%. Theoretically, the EU could halt aid to Spain due to its lack of compliance, but such a drastic step is very unlikely. The bloc wants to see Spain regain its financial footing, and some compromise will likely be reached.
- US faces another fiscal crisis: Remember the fiscal cliff crisis just a few months ago? This time the budget crisis is called “sequestrationâ€, which saw $85 billion in automatic spending cuts kick in on Friday, as the Democrats and Republicans failed to reach agreement and were quick to point fingers at each other for the impasse. The core issues, spending cuts and tax reforms, continue to divide US lawmakers along party lines. Republicans want to take the axe to social programs such as Medicaide, while Democrats insists on tax hikes as part of any deficit reduction plan. The negotiations, and the mutual finger pointing of blame and bad will, are set to continue on Capitol Hill. President Obama met with Republican Senators, as he continues a high-profile campaign to break the deadlock on Capitol Hill.
- Will Fed reconsider QE? The US has posted some solid economic releases of late, and this has rekindled discussion as to whether the Fed might wind up its current round of QE, which involves the purchase of $85 billion in assets each month. Although Fed Chair Bernard Bernanke and Vice-Chair Janet Yellen have stated that QE will continue, evidence of a stronger recovery would put pressure on the Fed to reconsider. If this week’s key employment data beats expectations, the Fed will face more pressure to wind down its stimulus program.
