EUR/USD moved higher after hawkish remarks by President Obama. Obama spoke out over the looming fiscal cliff crisis, seeking to assure Congress that the crisis will be avoided. Back in Europe, despite the agreement on Greece’s debt, the markets remain concerned that Greece may have difficulty meeting its targets in order to receive more bailout funds. In economic news, US New Home Sales came in well below the estimate. German Unemployment Change looked sharp, dropping to a six-month low. There was good news out of Italy, as 10-year yields dropped to 4.45%, its lowest rate in two years. It’s a busy Thursday in the US, with three key releases – Preliminary GDP, Unemployment Claims and Pending Home Sales.
EUR/USD Technical
Asian session: Euro/dollar was steady, trading around 1.2950. The pair has pushed higher in the European session.
Current range: 1.2960 to 1.30.
Further levels in both directions:
Below: 1.2960, 1.2880, 1.28, 1.2750, 1.2690, 1.2624, 1.2590, 1.25, 1.2440, 1.2390 and 1.2250.
Above: 1.30, 1.3030, 1.3080, 1.3140, 1.3170, 1.3290 and 1.34.
1.2960 is providing support as the pair has moved higher.
1.30 is the next line on the upside.
Euro/dollar higher following Obama remarks over fiscal cliff – click on the graph to enlarge.
EUR/USD Fundamentals
8:55 German Unemployment Change. Exp. +15K. Actual +5K.
9:10 Euro-zone Retail PMI. Exp. 45.8 points.
Italian 10-year Bond Auction. Actual 4.45%.
13:30 US Preliminary GDP. Exp. 2.8%. See how to trade this event with EUR/USD.
13:30 US Unemployment Claims. Exp. 392K.
13:30 US Preliminary GDP Price Index. Exp. 2.8%.
14:00 US FOMC Member William Dudley Speaks.
15:00 US Pending Home Sales. Exp. +0.9%.
15:30 US Natural Gas Storage. Exp. -5B.
For more events and lines, see the Euro to dollar forecast
EUR/USD Sentiment
- President Obama Speaks Out on Fiscal Cliff: Seeking to reassure nervous markets both in the US and abroad, President Obama has stated that his administration and Congress will take steps to avoid the looming fiscal cliff, which threatens to undermine the fragile economic recovery. Obama said little more than ““something will be done”, but the markets were happy to hear the president declare that the government will take steps to avoid the crisis. The Congressional Budget Office has warned if no action is taken, the US economy would contract by 0.5% in 2013. However, some Republican and Democrat politicians have drawn lines in the sand, and it will take skillful negotiations and generous compromises on the part of both sides to reach an agreement.
- Greece deal fails to dispel doubts: After the initial euphoria over the much-heralded agreement between the Eurogroup and the IMF over Greece’s debt, the markets seems to have lost some enthusiasm. The latest concerns reflects the lack of detail in the agreement as to how Greece will implement the reforms needed to meet its new fiscal targets. The first installment of aid scheduled for delivery in December appears to be linked to the success of the buy-back scheme stipulated in the agreement. As well, further bailout installments, which are to be delivered in early 2013, are conditional upon Greece’s ability to meet key fiscal targets. Clearly, despite the self-congratulating in Brussels this week, this lingering saga is far from over.
- Eurogroup, IMF sign deal on Greek debt: After arduous and sometimes acrimonious negotiations, Euro-zone finance ministers and the IMF hammered out a deal over Greek’s long-term debt earlier this week. Under the agreement, the troika has agreed to reduce Greece’s debt by 40 billion euros, lowering it to 124 per cent of Greek GDP by 2020. To reduce the debt, the Eurogroup agreed to lower interest rates on loans to Greece, and give Greece 11 billion euros from profits of the ECB purchases of Greek government bonds. As well, the euro-zone finance ministers agreed to help Greece purchase such bonds from private investors. The agreement should clear the way for Greece to receive additional bailout funds, starting next month. However, the question remains whether zone member states will eventually have to write off some of their Greek loans. Germany and other members are staunchly opposed to any such move, and time will tell if Greece can successfully find its financial footing.
- Greece hoping bailout aid on the way: News of an agreement over Greece’s debt out of Brussels was cheered by the beleaguered Greek government. Prime Minister Antonis Samaras appeared on national television late Monday night to celebrate a “new day” for the struggling country. Samaras will surely be counting down the days to December 13, the scheduled date of the next installment of bailout funds. Greece has enacted painful cuts and reforms as part of the troika’s demands, and is impatiently waiting for more bailout aid. However, the government knows it will have to make good on its commitments in order to receive each payout, and if the past is any indication, Greece’s road to recovery is likely to be a bumpy one, even with the much-needed rescue funds.
- Will Fed implement further QE?: It is not just politicians and the markets that are closely following the fiscal cliff crisis, which threatens to undermine the fragile US economic recovery. For its part, the Federal Reserve has taken the fiscal cliff into account by purchasing $40 billion in mortgage-backed securities each month. With this program (Operation Twist), slated to terminate at the end of the year, the Fed will have to decide at its next meeting whether to extend this program into 2013. Any decision with regard to QE could have serious repercussions on the currency markets, which gives added significance to the next Fed policy meeting.
- Separatists lose steam in Catalonia: Separatists in the Spanish region of Catalonia won regional elections on Sunday, but the ruling CiU party lost 12 seats, complicating plans for a referendum on independence. The results are a victory for the central government in Madrid, which is struggling with an economy in recession and can ill afford further political turmoil. However, the separatists now control two thirds of the local parliament, and Prime Minister Mariano Rajoy’s political headaches are far from over.
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