EUR/USD Steps Down in Response to Hot U.S. PPI Data

By Fast Brokers – The EUR/USD took another step down today after the U.S. printed a PPI figure 10 basis points hotter than analyst expectations.  Investors also received strong pricing data from the UK today, leaving central banks open to tighten liquidity should the recovery in prices continue and unemployment decline.  Meanwhile, the EUR/GBP is also experiencing a pullback, indicating a relative weakness in the Euro.  The Euro’s weakness likely stems from a weaker than expected headline ZEW Economic Sentiment number.  Hence, although the Euro is logging sizable losses against the Dollar today, the Pound is holding strong for the time being.  In addition to today’s U.S. PPI release, America also printed a set of mixed data points.  The Empire Index and TIC numbers both came well below expectations while Industrial Production and the Capacity Utilization Rate each printed strongly.  Hence, investors received a mixed picture of U.S. production and manufacturing while foreign interest in U.S. assets waned.  The mixed data points could help the EUR/USD and GBP/USD stabilize since the results don’t broadly support tighter monetary policy from the Fed.

That being said, the Fed will make its monetary policy decision tomorrow.  While the central bank will likely keep its policy unchanged, investors will be paying close attention to Bernanke’s language to see whether there is a more hawkish tone in reaction to recent improvements in employment and consumption data.  Any surprise from the Fed would naturally move currency movements since psychological forces have had considerable influence on the Dollar in the past.  Additionally, the EU will release some key data tomorrow, including a wave of Flash PMIs along CPI data.  Hence, volatility could remain at a heightened state for the next 24-48 hours.

Technically speaking, the EUR/USD is experiencing a discouraging setback today by dropping below our previous 1st tier uptrend line.  What is now our 2nd tier runs through 8/17 lows, meaning a more protracted decline towards 1.40 could be in the works should the EUR/USD not make a concerted effort to regain lost ground today.    Meanwhile, the psychological 1.45 are could prove to be a reliable support with October lows hanging nearby.  We’ve initiated a new 1st tier uptrend line (off chart), which is resting at about the 1.44 level right now.  As for the topside, the EUR/USD still faces multiple downtrend lines along with 12/14 and 12/9 highs.

Present Price: 1.4530

Resistances: 1.4541, 1.4556, 1.4573, 1.4588, 1.4600, 1.4617, 1.4634

Supports: 1.4528, 1.4519, 1.4501, 1.4483, 1.4467, 1.4444, 1.4412

Psychological: 1.45, 1.40, 1.50, October Lows

Market Commentary provided by Fast Brokers.

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