EUR/USD: Stable After Draghi Comments

 | May 27, 2014 05:34AM ET

The EUR/USD continues to trade quietly on Tuesday. In the European session, the pair is trading in the mid-1.36 range. There are no European economic releases on Tuesday, but the markets are keeping a close eye on ECB head Mario Draghi, who is attending an ECB forum in Lisbon. In the US, the markets are back to work after the Memorial Day long weekend. We'll get a look at two key events later in the day - Core Durable Goods Orders and CB Consumer Confidence.

On Monday, ECB President Mario Draghi said that the ECB is concerned above deflation taking hold of the Eurozone, and reiterated that the central bank is ready to act. This was another sign that the ECB could take action at its policy meeting next month. The monetary tools available to the ECB include a reduction in interest rates, asset purchases, or liquidity injections. Any one of these moves would likely have a strong impact on EUR/USD, which has retracted somewhat since testing the 1.40 level earlier in May.

The week did not start well for the EU, as anti-EU parties posted stunning victories in European parliamentary elections held on Sunday. These "eurosceptic" parties posted strong gains across the continent, notably in France, the UK and Greece. With Eurozone countries suffering from weak growth and high unemployment, voters had a chance to lash back in the  elections, and their frustration and anger was heard loud and clear at the ballot box. French Prime Minister Manuel Valls called the results an "earthquake" and the elections could weigh on the euro, although so far the currency has remained firm.

In the US, Unemployment Claims has looked sharp over the past two releases, but the short streak came to an end, as the key employment indicator climbed to 326 thousand, up from 297 thousand a week earlier. This missed the estimate of 312 thousand. With future QE tapers by the Federal Reserve contingent on solid economic data, key employment releases such as Unemployment Claims will continue to be closely scrutinized by the markets. Elsewhere, key housing data was a mix, as Existing Home Sales fell short of expectations, while New Home Sales improved sharply in April and easily beat the estimate.