EUR/USD July 11- Euro Rockets as Fed Divided over QE

The euro enjoyed a splendid Wednesday, jumping about 350 points against the US dollar. The dollar has recovered some of these losses on Thursday, as EUR/USD trades in the mid-1.30 range. The euro jumped following the release of the FOMC’s most recent policy meeting, which showed that Federal policymakers were divided over tapering QE. In economic news, US 10-year bonds jumped to their highest level in two years, posting an average yield of 2.67%. Germany continues to post weak inflation numbers, as WPI recorded its fourth straight decline. The ECB released its monthly bulletin on Thursday and left the door open for further rate cuts. In the US, Thursday’s highlight is Unemployment Claims.

Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar.

EUR/USD Technical

• Asian session: There was plenty of volatility from Euro/dollar. The pair shot higher, breaking past 1.32 and touching a high of 1.3206. This was followed by a sharp retraction, as the pair consolidated at 1.3085. In the European session, Euro/dollar has dropped to 1.3040.

Current range: 1.30 – 1.3050.

Further levels in both directions: 

<img alt=”EUR USD Daily Forecast July 10th” src=”http://forexcrunch.wpengine.netdna-cdn.com/wp-content/uploads/2013/07/EUR-USD-Daily-Forecast-July-10th-350×196.png” width=”350″ height=”196″ /> 

<img alt=”EUR USD Daily Forecast July 9th” src=”http://forexcrunch.wpengine.netdna-cdn.com/wp-content/uploads/2013/07/EUR-USD-Daily-Forecast-July-9th-350×196.png” width=”350″ height=”196″ />
<img alt=”EUR USD Daily Forecast July 8th” src=”http://forexcrunch.wpengine.netdna-cdn.com/wp-content/uploads/2013/07/EUR-USD-Daily-Forecast-July-8th-350×196.png” width=”350″ height=”196″ />

• Below: 1.30, 1.2940, 1.2890, 1.2840, 1.28, 1.2750, 1.27, 1.2660 and 1.26.
• Above: 1.3050, 1.3100, 1.3160, 1.32, 1.3255, 1.3350 and 1.34.
• 1.30 is providing weak support. 1.2940 is next.
• On the upside, the pair is testing 1.3050. The next line of resistance is at the round number of 1.31.

US dollar recovering after sharp losses in Wednesday Asian session – click on the graph to enlarge.

EUR/USD Fundamentals

• 6:00 German WPI. Exp. 0.3%. Actual -0.4%.
• 6:45 French CPI. Exp. 0.1%. Actual 0.2%.
• 8:00 ECB Monthly Bulletin.
• 8:00 German Buba President Jens Weidmann Speaks.
• 12:30 US Unemployment Claims. Exp. 342K. See how to trade this event with EUR/USD.
• 12:30 US Import Prices. Exp. 0.1%.
• 14:30 US Natural Gas Storage. Exp. 80B.
• 15:00 FOMC Member Daniel Tarullo Speaks.
• 17:00 US 30-year Bond Auction.
• 18:00 US Federal Budget Balance. Exp. 42.1 billion.

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

EUR/USD Sentiment

<img alt=”EUR USD Daily Forecast July 5th” src=”http://forexcrunch.wpengine.netdna-cdn.com/wp-content/uploads/2013/07/EUR-USD-Daily-Forecast-July-5th-350×196.png” width=”350″ height=”196″ />

• Euro jumps after release of Fed minutes: The euro has been struggling of late, but caught a break after the release of the FOMC minutes from the June policy meeting. The minutes indicated that Federal Reserve policymakers are closely split over when to scale down the current round of QE, in which the Fed purchases $85 billion in assets each month. About half of the policymakers favor commencing tapering before the end of 2013, while others feel that the labor market is still too weak. The dollar continued to fall as Fed Reserve chair Bernard Bernanke gave a speech in which he said that the Fed would maintain accommodative monetary policy for the foreseeable future, due to low levels of inflation and the high US unemployment rate. The dollar was broadly weaker as a result, and the euro took full advantage, posting gains of some 350 points. The dollar has recovered some of these losses on Thursday.
• Portugal crisis eases: The political crisis which gripped Portugal last week may be over. The country has been struggling with austerity measures as part of its bailout program, and the government was rocked by the resignations of the finance and foreign ministers last week. Coelho said a deal had been reached with a junior coalition party, which would ensure that the government continues to run the country. There was concern that the crisis could derail Portugal’s 78 billion bailout agreement. The political deal is subject to the approval of Portugal’s president, Anibal Cavaco Silva. Last week, the crisis spooked global stock markets and sent Portuguese bond yields soaring. With the Cyprus bailout crisis still not fully resolved, Portugal’s troubles are yet another example of how a political or economic crisis in a small Eurozone member can have an effect far beyond its borders.
• Spanish PM accused of corruption: Just when it seemed that the Portuguese government had dodged a severe political crisis, its eastern neighbor has its own political hot potato to worry about. The ruling party in Spain appears to have been involved in a corruption scandal, and now Prime Minister Mariano Rajoy has been implicated as well. There is a report in the Spanish media that Rajoy received illegal payments while serving as a minister in the Aznar government back in the late ’90s. If the scandal deepens, it could topple the government, and lead to turmoil in the country. Clearly, another political crisis in Europe will have a negative impact on the shaky euro.
• Eurogroup releases some bailout aid to Greece: Eurozone financial ministers met on Monday, and decided to release more aid to Greece, but only part of the scheduled tranche of 8.1 billion euros. Greece will receive 3 billion euros in July and additional funds in August and October. The Eurogroup decision to give Greece only a portion of the funds points to dissatisfaction with the lack of progress by Athens in implementing the bailout conditions, including improved tax collection and cuts to the bloated public service. Greece will have to show more progress in economic restructuring before the troika releases more bailout funds.

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