EUR/USD – Euro Continues Rally as Dollar Struggles

EUR/USD continues to move upwards in Wednesday trading. The pair crossed  the 1.32 line in the European session, as the US dollar continues to lose ground. The euro has taken full advantage of broad weakness by the greenback, and has gained over two cents in the past week. In the US, the markets will be hoping for good news from Wednesday’s key events – ADP Non-Farm Employment Change and the ISM Manufacturing PMI. This will be followed by the FOMC Statement at the Federal Reserve Policy Meeting. We won’t see any action out of Europe, where the markets are closed for the May 1 holiday.

Will he or won’t he? This question is looming large, as the markets anxiously wait to see whether Mario Draghi and his colleagues at the ECB will press the trigger and lower in interest rates for the first time since last July. The Eurozone continues to stagnate with poor releases, highlighted by another record high for Eurozone Unemployment Rate, which edged to 12.1%, up from 12.0%. Speculation that the ECB will take action and lower rates is growing, and most analysts are expecting a cut in rates. All eyes will be on the ECB,  which will announce the new rate on Thursday. Whether the ECB takes action or leaves the rate as is, we could be in for some volatility from the euro.

After months of paralysis, Italy has finally formed a government. The deadlock, which had paralyzed the Eurozone’s third largest economy and had kept the markets on edge, was finally broken as Enrico Letta was nominated as prime minister last week. Letta’s Democratic Party does not have a parliamentary majority, so the coalition he has cobbled together may not last for long. Letta is considered a moderate and is liked within the Eurozone. The new government will be faced with an economy mired in recession and a sour electorate that is fed up with austerity measures. The markets were pleased by the news, and Italian 10-year bonds fell below 4%, indicating renewed investor confidence in the Italian economy.

The US has treated the markets to weeks of poor data, but this week has looked much better. On Monday, US Pending Home Sales recorded a gain of 1.5%, beating the forecast of 1.1%. The next day, CB Consumer Confidence jumped to 68.1 points, blowing past the estimate of 61.4 points. The markets will be hoping that the modest trend continues on Wednesday, as the US releases key employment and manufacturing numbers. The Federal Reserve meets on Wednesday, and policy makers are expected to continue with the QE program. This is a dollar-negative event, so we could see a reaction from EUR/USD following the FOMC Statement.

EUR/USD for Wednesday, May 1, 2013

1.3213 H: 1.3216 L: 1.3160

EUR/USD Technical

EUR/USD is flexing some muscle in Wednesday trading, and has crossed the 1.32 line in the European session. The pair is receiving support at 1.3170. This line is a weak one, and could face pressure if the euro retracts. There is a stronger support level at the round number of 1.3100. On the upside, the pair faces resistance at 1.3240. The pair faces stronger resistance at 1.3306.

• Current range: 1.3050 to 1.3100

Further levels in both directions:

• Below: 1.3170, 1.31, 1.3050, 1.3000, 1.2960 and 1.2880
• Above: 1.3240, 1.3306, 1.3398 and 1.3479

OANDA’s Open Position Ratios

The EUR/USD ratio continues to point to movement towards short positions, and this has been the trend throughout the week. This is not reflected in the pair’s current movement, as the euro is pushing higher. The activity in the ratio could be a sign that we are in for a correction and the dollar will rebound. Short positions command a strong majority, indicative of a strong trader bias toward the dollar reversing direction and moving higher.

The euro has broken out of its drifting, and has pushed above the 1.32 line. We could see some movement after the Fed Statement later today.

EUR/USD Fundamentals

• 12:15 ADP Non-Farm Employment Change. Estimate 154K
• 13:00 US Final Manufacturing PMI. Estimate 52.1 points
• 14:00 US ISM Manufacturing PMI. Estimate 51.0 points.
• 14:00 US Construction Spending. Estimate 0.7%
• 14:00 US ISM Manufacturing Prices. Estimate 52.6 points.
• 14:30 US Crude Oil Inventories. Estimate 1.2M.
• All Day: US Total Vehicle Sales. Estimate 15.2 M.
• 18:00 US FOMC Statement.
• 18:00 US Federal Funds Rate. Estimate <0.25%.

*Key releases are highlighted in bold

*All release times are GMT

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