EUR/USD – Drops Sharply After QE Doubts, Disappointing Euro PMIs

EUR/USD has taken a tumble in Thursday trading, losing around one cent. The euro lost ground after the Federal Reserve’s released the minutes from its previous meeting which indicated that policy makers had discussed putting an early end to the current round of QE. There was more negative news for the euro as PMI numbers from Germany, France and the Eurozone all failed to meet the estimate. The markets are waiting for the release of the Spanish 10-year Bond Auction will be released. In the US, it’s a very busy day, with a host of releases, including four key publications – Core CPI, Unemployment Claims, Existing Home Sales and the Philly Fed Manufacturing Index.

Late Wednesday, the Federal Reserve released the minutes of its most recent FOMC meeting. At the meeting, there was discussion of winding down the current round of QE due to concern about the negative effect that QE could have on the financial markets. Previously, the Fed had stated that it expected to continue with QE until unemployment dropped to 6.5%. The Fed has been purchasing a record amount of assets since December,  kept its key interest rate close to zero and expanded its balance sheet to over $3 trillion, but the US economy has not responded as quickly as hoped. The markets were surprised by the change in the Fed’s stance, and the euro dropped against the US dollar.

There was more bad news for the euro on Thursday, as PMI numbers from across Europe were weaker than anticipated. Services and Manufacturing PMI data was released by France, Germany and the Eurozone, and all were below the forecast. Most of the indicators failed to break above the 50 point level. Any figure below 50 indicates contraction; thus, we are seeing continuing weakness in the services and manufacturing sectors. The disappointing figures weakened market sentiment, and the euro took a hit, as it dropped below the 1.32 line.

Currency exchange rates and their recent volatility have become a hot topic, and the G-20 addressed this issue at its recent meeting, although it was careful not to ruffle any feathers. The leaders pledged not to “target our exchange rates for competitive purposes”, and to move more rapidly to market-determined exchange rate systems. The G-20 statement did not make reference to Japan, which has come under fire for monetary policies which have led to free-fall in the value of the Japanese yen. The G-20 also called for more joint efforts to strengthen the Eurozone, by building a stronger economic and monetary union.

 

EUR/USD for Thursday, Feb 21, 2013

Forex Rate Graph 21/1/13

EUR/USD February 21 at 11:00 GMT

1.3186 H: 1.3290 L: 1.3168

 

EUR/USD Technical

S3 S2 S1 R1 R2 R3
1.3080 1.3130 1.3170 1.3240 1.3280 1.3350

 

EUR/USD has dropped sharply, losing ground in the Asian and European sessions. The pair is receiving weak support at 1.3170, and this line could see a further activity, as the euro struggles to find its footing. The next line of support is 1.3130. On the upside, the pair faces resistance at 1.3240. This is followed by resistance at 1.3280.

Current range: 1.3170 to 1.3240.

Further levels in both directions:

  • Below: 1.3170, 1.3130, 1.3080, 1.3030, and 1.30.
  • Above: 1.3240, 1.3280, 1.3350, 1.34, 1.3480, 1.3568 and 1.3627.

 

OANDA’s Open Position Ratios

The EUR/USD ratio continues to show movement towards long positions. This is not currently reflected in the currency pair’s movement, as the euro has taken a tumble against the US dollar in Thursday trading. The activity in the ratio could be sign that we will see a correction to the pair’s current downward movement.

The euro’s woes continue, following the release of the Federal Reserve minutes and weak PMI data out of the Eurozone. The currency has fallen sharply, and has dipped below the 1.32 line. Will the downward momentum continue? With a host of US releases due later today, we could further fluctuations from EUR/USD.

 

EUR/USD Fundamentals

  • 8:00 French Flash Manufacturing PMI. Estimate 43.9 points. Actual 43.6 points.
  • 8:00 French Flash Services PMI. Estimate 44.5 points. Actual 42.7 points.
  • 8:30 German Flash Manufacturing PMI. Estimate 50.4 points. Actual 50.1 points.
  • 8:30 German Flash Services PMI. Estimate 55.5 points. Actual 54.1 points.
  • 9:00 Eurozone Flash Manufacturing PMI. Estimate 48.4 points. Actual 47.8 points.
  • 9:00 Eurozone Flash Services PMI. Estimate 49.2 points. Actual 47.3 points.
  • 9:43 Spanish 10-year Bond Auction. Actual 5.20%.
  • 13:30 US Core CPI. Estimate 0.2%.
  • 13:30 US Unemployment Claims. Estimate 353K.
  • 13:30 US CPI. Estimate 0.1%.
  • 14:00 US Flash Manufacturing PMI. Estimate 55.6 points.
  • 15:00 US Existing Home Sales. Estimate 4.89M.
  • 15:00 US Philly Fed Manufacturing Index. Estimate 1.1 points.
  • 15:00 US Mortgage Delinquencies.
  • 15:00 US CB Leading Index. Estimate 0.2%.
  • 15:30 US Natural Gas Storage. Estimate -119B.
  • 16:00 US Crude Oil Inventories. Estimate 1.9M.
  • 17:30 US FOMC James Bullard Speaks.

 

*Key releases are highlighted in bold

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.