Market Overview

EUR/USD Dec. 18 Narrow Range Trading Continues

The euro is coming off an impressive rally last week, in which the continental currency gained over two cents against the US dollar. There were three important developments late last week which allowed the euro to climb higher. First, there was tangible progress in the thorny debt crisis, as the Eurogroup agreed to release the second installment of about EUR 50 billion in bailout funds to Greece.

The country received the first portion of EUR 34.3 billion on Monday, and the remaining funds will be delivered by March 2013. Second, the Eurogroup signed a framework agreement whereby the ECB will become the single supervisor for the 200 largest banks in the Eurozone. The move aims to achieve closer financial integration in the zone, restore confidence in the bank sector and minimize future banking crises. If all goes smoothly, the ECB will begin its new role as a “super bank commissioner” by January 2014.

Finally, the Federal Reserve announced that it would implement another round of quantitative easing (QE4), and purchase an additional $45 billion per month in Treasury holdings in order to boost the US economy. The Fed is stepping in order to bolster the US economic recovery, which has been moving at a frustratingly slow pace. Market focus has now shifted to the looming fiscal cliff crisis. This refers to a combination of tax hikes and spending cuts if Congress does not take action before the end of 2012.

The Republicans have softened their position, and it appears that any agreement will include tax hikes on the nation's wealthiest earners. However, the sides are still far apart on how deep the cuts should be to federal spending cuts, with the Democrats strongly opposed to cuts to major programs such as Medicare. Negotiations between the Democrats and the Republicans are in full gear, and lawmakers on Capitol Hill would love to hammer out a deal before the Christmas holidays next week. Looking at the fundamentals, there are no scheduled releases out of the Euro-zone and only two from the US. Wednesday will be busier, with some key releases from both the Eurozone and the US.

EUR/USD for Tuesday, Dec 18, 2012

EUR/USD Dec 18 at 10:10 GMT
1.3162 H: 1.3179 L: 1.3156

S3 S2 S1 R1 R2 R3
1.3030 1.3080 1.3135 1.32 1.3235 1.3280

 

EUR/USD Technical
EUR/USD remains boxed in a narrow range, unable to break out in either direction. The pair was quiet in the Asian session, consolidating around 1.3165. The range trading has continued in the European session, with the pair showing very little movement. The resistance line at 1.32 continues to hold firm. On the downside, the next line of support is at 1.3135.
• Current range: 1.3135 to 1.32
Further levels in both directions:
• Below: 1.3135, 1.3080, 1.3030, 1.2960, 1.2880, 1.28, 1.2750, 1.2690, 1.2624, 1.2590, 1.25, 1.2440, 1.2390 and 1.2250.
• Above: 1.32, 1.3235, 1.3280, 1.3385, 1.3485 and 1.3575.

OANDA's Open Position Ratios
Trader sentiment remains in favor of short positions. The euro is coming off sharp gains against the dollar, but has been in a holding pattern on Monday and Tuesday. With trading activity winding down towards to holiday, we could see the pair continue to drift.

So far this week, EUR/USD has been marked by narrow range trading. With very few releases today, the pair is likely to remain quiet absent any major developments in the fiscal cliff.

EUR/USD Fundamentals
• 13:30 US Current Account. Estimate -105B.
• 15:00 US NAHB Housing Market Index. Estimate 47 points.

*Key releases are highlighted in bold
*All release times are GMT

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