EUR/USD Drops Amidst Changing Sentiments

January 16, 2013 in Forex Fundamentals and News

EUR/USD dropsAfter going as high as 1.3404, EUR/USD could not sustain the psychological resistance of 1.3500 ranges. The currency pair remained in sideways mode below 1.3400 for over 15 hours but then fell strongly to 1.3263 before recovering slightly.

U.S. Debt crisis and President Barak Obama’s Firm stand

President Barak Obama’s firm stand about raising the borrowing limits to come out of the debt crisis has given some push to the strength of the U.S. dollar. Obama has firmly refused to accept the demands of the republicans to negotiate on federal spending cuts to raise the borrowing limits. “America cannot afford another debate with this Congress about whether or not they should pay the bills they’ve already racked up,” was his message during a press conference in Washington yesterday.

Though the republicans are not backing away from their demands of linking the raise in the borrowing limits to the spending cuts and that keeps the pressure on  the dollar but on the other hand Obama’s refusal for any negotiations in this regards has been taking out some immediate pressure from the currency.

Latest economic releases

The latest economic releases from U.S. and Europe gave a neutral picture for comparative strength though it can be seen as mildly favoring the single currency i.e. euro in the short-term.

Euro zone economic data

1) Consumer Price Index: The previous year on year change in the German CPI was 1.9%. The latest data of December which was released at GMT 07:00 on January 15th showed a rise to 2.1% which was as per the consensus of the economists.

The previous change in the year on year harmonized CPI was also 1.9%. The latest released data for December showed a change of 2.0% and though it was slightly less than the consensus of 2.1% but was better than the previous release.

2) German real GDP growth: There was a drop from previous 3.0% to 0.7% which was also less than the consensus of 0.8%.

3) European Monetary Union’s Trade Balance: The trade balance reports showed an improvement.  The previous release of trade balance s.a. for November was Euro 7.4 billion while yesterday’s data for December showed an increase to 11.0 billion euro. Similarly the latest data for trade balance n.s.a. came as 13.7 billion euro against the Novembers 10.2 billion and the consensus of 10.0 billion euro.

Latest economic data from the U.S.

1) Producer Price Index: Year on year change in the PPI released at GMT 13:30 on Monday showed a drop to 1.3% against the previous release of 1.5% and also the consensus of 1.4%. Same was the case with  the producer price index ex-food & energy which showed a drop to 2.0% against the previous release of 2.2% and the consensus of 2.1%.

 2) Retail Sales: The retail sales climbed unexpectedly in December. The month on month change was 0.5% against the previous 0.3%. The consensus of the economists was for a drop to 0.2%. Retail sales ex-autos also saw an unexpected jump from the previous -0.1% to 0.3%. The consensus was for a growth to 0.2%.

3) Business Inventories: There was no change in the business inventories from the previous 0.3%.

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