EUR/USD – Struggling after Weak Eurozone Numbers

EUR/USD is under pressure in Wednesday trading, as the pair tests the 1.28 level. The euro weakened after poor employment and manufacturing numbers from the Eurozone on Tuesday. With the ECB holding a policy meeting on Thursday, the markets are in a cautious mood. Today’s sole Eurozone release, CPI Flash Estimate, came in close to the estimate. In the US, the markets will be hoping for some good news from today’s two major releases – ADP Non-Farm Employment Change and ISM Non-Manufacturing PMI.

The Cyprus bailout agreement may have been signed, but the drama continues and questions remain. Strict capital controls are still in place in Cyprus in order to prevent a run on the banks. Under the agreement, bank deposits below EUR100,000 are safe, but larger accounts with the Bank of Cyprus will  be facing a haircut of up to 60%. An amount of 37.5% of these deposits will  be converted into bank shares, and up to 22.5% more could be grabbed in order to prop up the Bank of Cyprus’ reserves. This steep tax is expected to have a strong negative impact on the country’s business sector, and the government has admitted that the country is in recession. In order to help the ailing economy, the government plans to lift a ban on casinos and provide tax exemptions on business profits that are reinvested on the island. President Nicos Anastasiades has acknowledged that the bailout agreement is a bitter pill for Cypriots, but said that refusing the agreement would have meant the collapse of the banking sector and could have led to Cyprus’ exit from the Eurozone.

The ECB will hold a policy meeting on Thursday, the first since the Cyprus bailout crisis sent shock waves through the markets worldwide. The ECB is expected to maintain the current benchmark rate of 0.75%, but what will be of more interest to the markets are remarks by ECB head Mario Draghi following the rate announcement. Draghi will likely address the bailout issue and try to calm nervous markets.

In Italy, the political paralysis continues, and the situation is truly bewildering, even by Italian standards. Coalition talks have made no progress so far, with the anti-establishment Five-Star movement, which won more votes than any other party, showing no flexibility. In desperation, Italian President Napolitano has appointed a panel of 10 experts, including politicians and a central bank official, in order to find some solution. The Italian media has playfully dubbed the panel the “Ten Wise Men”. All humor aside, the panel will have their hands full trying to reach some resolution to the inconclusive election, which has left the Eurozone’s third largest economy in a deep political crisis. In economic news, Italian Manufacturing PMI dropped from 45.8 points to 44.5, missing the estimate of 45.4. However, the unemployment rate improved slightly, dropping to 11.6%. This beat the estimate of 11.8%.

US releases were a bust last week, with poor data across a range of sectors, including housing and employment. The new week did not start well, as the ISM Manufacturing PMI dropped sharply from 54.2 points to 51.3 points, way below the estimate of 54.2 points. If this week continues in a downward trend, we could see a negative reaction from the markets. The markets will be hoping for a turnaround on Wednesday, as the US releases key employment and PMI numbers.

 

EUR/USD for Wednesday, April 3, 2013

Forex Rate Graph 21/1/13
 

EUR/USD April 3 at 9:30 GMT

1.2831 H: 1.2836 L: 1.2790

EUR/USD Technical

S3 S2 S1 R1 R2 R3
1.2689 1.2757 1.2805 1.2880 1.2950 1.3000

 

EUR/USD is showing some movement, as the pair dipped below the 1.28 line in the Asian session, and bounced back in European trading. The proximate support and resistance lines remain in place (S1 and R1 above). There is weak support at 1.2805. This line was tested earlier today and could continue to face pressure as the pair is showing movement in both directions. The next support level is at 1.2757. On the upside, 1.2880 is providing resistance. This line has strengthened as the pair trades close to the 1.28 level.

Current range: 1.2805 to 1.2880

Further levels in both directions:

  • Below: 1.2805, 1.2757, 1.2689, 1.2624, 1.2495
  • Above: 1.2880, 1.2950, 1.3000 and 1.3080

 

OANDA’s Open Position Ratios

The EUR/USD ratio is showing movement, with an increase in long positions. Since mid-March, the ratio has seen significant movement towards long positions, which now comprise a solid majority. This is indicative of a bias in trader sentiment towards the euro improving against the US dollar. Currently, EUR/USD has edged higher, and is trading in low-128 territory, after dipping below 1.28 earlier.

EUR/USD remains under pressure, and this is likely to continue as the markets wait for the ECB policy meeting on Thursday. The US is releasing two key events today, and both should be treated as market-movers. So we could see more movement from the pair during the course of the day.

 

EUR/USD Fundamentals

  • 9:00: Eurozone CPI Flash Estimate. Estimate 1.6%. Actual 1.7%.
  • 12:15 US ADP Non-Farm Employment Change. Estimate 203K
  • 14:00 US ISM Non-Manufacturing PMI. Estimate 55.9 points
  • 14:30 US Crude Oil Inventories. Estimate 1.8M
  • 21:00 US FOMC Member 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.