Alpesh Patel's NewsletterPro - Volatility picks up in the Euro and the Dollar as the day ahead promises further developments

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© Alpesh Patel

The Euro was the main focus of yesterday’s session with the Single currency picking up momentum as it broke below the 1.3700 support. The European currency traded down to 1.3660 before pulling back up towards the 1.3700 barrier.

Political and economic reasons were behind this drop as tensions in Ukraine resumed with people protesting again as well as a radical decline in emerging markets’ currencies. Moreover, the surprise rise in US Home Sales benefited the US Dollar that gained against the European currency.

However, today’s unemployment and inflation figures expected from Germany have the potential to reverse this drop. Expectations are that the unemployment level will remain stable along with inflation printing in line with recent levels and this could provide significant lift to the Euro in order to climb back above 1.3700. On the other hand, any signs of weakness coming from Europe’s largest economy will spur a sell-off in the European currency driving it towards 1.3600.

Unlike the Euro, the Pound remained stable against the Dollar holding its 1.66-1.67 range. The GDP for the fourth quarter printed as expected but there were several components in the release that worried investors, with private consumption being one of them. That along with mixed policymakers’ comments on when to expect a rate hike from the Bank of England didn’t allow the Pound to move higher. However, as long as the British currency holds above 1.6600 its outlook remains bullish.

Regarding the US Dollar, the currency enjoyed significant demand yesterday against its peers and investors are buying Dollars ahead of today’s testimony from Janet Yellen on monetary policy. We’re very interested to hear what she’d have to say regarding the recent disappointing US data releases and whether this makes the possibility to temporarily postpone further tapering a working scenario. We believe that Yellen won’t reveal any thoughts she might have on the subject and will prefer to discuss this among the monetary policy committee when they meet again but her remarks could hint us on how confident she is on the tapering agenda.

Important data expected from Germany along with Yellen’s testimony

The Economic Calendar today packs a number of significant events that have the potential to bring volatility back into the markets. Early in the morning, the German Unemployment data are expected and also the CPI inflation report is scheduled for release. These releases have the potential to lift the Euro back above 1.3700 but any surprises to the downside will further pressure the European currency.

Later in the day, the US Durable Goods orders are expected along with the Initial Jobless Claims figures. We believe that reaction to these data will be limited as investors will focus on Yellen’s remarks on her Senate testimony a couple of hours later.

Economic Calendar

Time

Currency

Event

Importance

Forecast

Previous

08.55

EUR

German Unemployment Rate

High

6.8%

6.8%

10.00

EUR

Euro-zone Consumer Confidence

Medium

-12.7

-12.7

13.00

EUR

German Consumer Price Index

High

1.3%

1.3%

13.30

USD

Durable Goods Orders

High

-1.7%

-4.2%

13.30

USD

Initial Jobless Claims

Medium

335K

336K

15.00

USD

Fed’s Yellen testifies to the Senate

High

 

 

TECHNICAL ANALYSIS & LEVELS

EUR/USD

GBP/USD

FTSE 100

Gold

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