EUR/USD – Steady as Spanish Employment Numbers Sizzle

EUR/USD has started the week in quiet fashion, after some volatility last week, as the ECB lowered interest rates. The pair was trading in the low-1.31 range in Monday’s European session. The markets are now focusing on a host of Eurozone releases on Monday. In Spain, Unemployment Change was very sharp, while Services PMI missed the estimate. Meanwhile, Italian Services PMI and Final Services PMI both beat expectations. ECB Mario Draghi will speak later today in Rome, and the markets will be listening very carefully. It’s a quiet start to the week in the US, with no releases on Monday.

On Thursday, the ECB pulled the trigger and reduced interest rates to 0.50%, a record low. The rate had been pegged at 0.75% since July 2012. The move was widely expected, as the Eurozone economy remains in poor shape, and many of the major European economies are in recession. However, the euro initially moved higher before dropping sharply. The catalyst for the drop was comments by ECB head Mario Draghi that he was considering a negative deposit rate for banks. The deposit rate, which is what the ECB pays Eurozone banks for overnight deposits, currently stands at 0%. A negative rate could lead to funds flowing out of the Eurozone, and the euro was down more than one cent on Thursday as a result. The euro recovered partially on Friday, and has started the new trading week quietly.

After weeks of a political stalemate, Italy finally formed a government. Since this dramatic development, we’ve seen some respectable releases from the Eurozone’s third largest economy. Last week, Italian 10-year bonds dropped below 4%, an important sign of investor confidence in the Italian economy. Then, the Italian Monthly Unemployment Rate edged lower, from 11.6% to 11.5%.  Manufacturing and Services PMIs have followed suit, and also beat expectations. If the new coalition makes good on its promises to continue with major economic reforms, we could see the Italian economy improve, which would be excellent news for the Eurozone and the euro.

In Spain, the week started in fine fashion, as Unemployment Change dropped by 46.1 thousand. This surprised the markets, which had expected a rise of 17.1 thousand. Prime Minister Mariano Rajoy has stated that he expects the unemployment rate, currently at a record 27%, to start dropping in 2014 as the economy improves. The Spanish government has implemented tough and unpopular austerity measures, and further solid numbers out of Spain would be a strong indication that the austerity program is bearing fruit.

Back in the US, last week’s employment numbers were welcome news, as the US has been churning out mostly weak key releases. Unemployment Claims came in below expectations for the second straight week. The key indicator dropped from 339 thousand to 324 thousand, blowing past the estimate of 346 thousand. On Friday, Non-Farm Payrolls climbed to 165 thousand. This easily beat  the estimate of 146 thousand. As well, the Unemployment Rate fell from 7.6% to 7.5%. Improving employment numbers are critical for economic growth, and the markets are hoping that the good news continues.

EUR/USD for Monday, May 6, 2013

EUR/USD 1.3100 H: 1.3140 L: 1.3093

EUR/USD Technical

EUR/USD is trading quietly in Monday trading. On the downside, the pair is testing the 1.31 level. There is stronger support at 1.3050. On the upside, 1.3170 is providing resistance. This is followed by resistance at 1.3240.

• Current range: 1.3100 to 1.3170

Further levels in both directions:

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

OANDA’s Open Positions Ratio

The EUR/USD ratio is showing little change as we begin the new trading week. This is reflected in the pair’s current lack of movement, as the euro continues to hug the 1.31 level. Traders should continue to monitor the ratio for any activity, as this could be a sign that the pair will show movement.

After some volatility from EUR/USD late last week, EUR/USD is treading softly near the 1.31 line. The rate cut by the ECB is intended to kick-start the Eurozone economy, so if market sentiment improves, we could see the euro move higher.

EUR/USD Fundamentals

• 7:00 Spanish Unemployment Change. Estimate 17.1K. Actual -46.1K.
• 7:15 Spanish Services PMI. Estimate 45.8K. Actual 44.4K.
• 7:45 Italian Services PMI. Estimate 46.3 points. Actual 47.0 points.
• 8:00 Eurozone Final Services PMI. Estimate 46.6 points. Actual 47.0 points.
• 8:30 Eurozone Sentix Investor Confidence. Estimate -14.6 points. Actual -15.6 points.
• 9:00 Eurozone Retail Sales. Estimate -0.1%. Actual -0.1%.
• 13:00 ECB President Mario Draghi 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.