EUR/USD – Euro Red-Hot as ECB Holds Steady

EUR/USD posted sharp gains on Thursday, climbing about 150 points in an action-packed session. The ECB held a policy meeting, and voted to maintain the current benchmark interest rate at 0.50% and deposit rates at 0%. The pair got a boost from optimistic comments from ECB head Mario Draghi about Eurozone growth in 2014. In economic releases, German Factory Orders disappointed, dropping to a seven-month low. In the US, Unemployment Claims improved and met expectations. On Friday, German Trade Balance easily beat the forecast and German Industrial Production will be released later in the day. We’ll get a good look at the US labor picture, with the release of two key events – Unemployment Rate and Non-Farm Payrolls. EUR/USD has settled down, trading in the mid-1.32 range in the European session.

Recent ECB policy meetings have resulted in strong volatility from the euro, and Thursday was no exception. EUR/USD sparkled, jumping around 150 points on the day, as the currency briefly crossed above the 1.33 level. As expected, the ECB maintained its benchmark rate at 0.50% and deposit rates at 0%. There has been talk of lowering deposit rates into negative territory, but so far the ECB has not taken any action in this direction. In his remarks, ECB President Mario Draghi downgraded the forecast for Eurozone growth in 2013 from 0.6% to 0.5%. However, for 2014, Draghi hiked  the forecast from 1.0% to 1.1%. The markets seemed pleased with Draghi’s comments, and the euro surged against the dollar, which was broadly weaker against the major currencies.

US employment numbers continue to be a mixed bag. On Wednesday, ADP Non-Farm Payrolls slipped badly. The key employment indicator missed the estimate for the third consecutive month. The indicator posted a reading of 135 thousand, well off the forecast of 171 thousand. Unemployment Claims showed improvement, coming in at 346 thousand. This almost matched the forecast of 345 thousand. The markets will get another look at the US employment picture on Friday, with the release of Unemployment Rate and Non-Farm Payrolls. If the results are not in line with market expectations, we could see a reaction from EUR/USD.

It isn’t often that Spanish releases impress the markets, so the first week in June has been a pleasant surprise. Services PMI looked very sharp posting its best performance since July 2011., which was the last time that the index was above the 50-point level. Earlier in the week, Manufacturing PMI followed suit with a strong rise. This was followed by Unemployment Change, which pointed to 98 thousand less claims, a record for the month of May. Prime Minister Mariano Rajoy, whose government remains deeply unpopular due to a strict austerity program, could get some breathing room from these figures. If the fourth largest economy in the Eurozone can continue this positive trend, it would be great news for the Eurozone and the euro.

 

EUR/USD for Friday, June 7, 2013

Forex Rate Graph 21/1/13
EUR/USD June 7 at 8:30 GMT

EUR/USD 1.3242 H: 1.3269 L: 1.3230 

EUR/USD Technical

S3 S2 S1 R1 R2 R3
1.3050 1.3100 1.3162 1.3271 1.3353 1.3477

 

EUR/USD has settled down on Friday after sharp gains a day earlier.  On the downside, 1.3162 is providing support. This line has strengthened as the pair trades at higher levels. The next support level is at the round number of 1.3100. On the upside, the pair faces resistance at 1.3271. This is a weak line, and could face pressure if the euro continues its upward surge. This is followed by resistance at 1.3351.

  • Current range: 1.3162 to 1.3271

 

Further levels in both directions:

  • Below: 1.3162, 1.3100, 1.3050, 1.3000 and 1.2955
  • Above: 1.3271, 1.3353, 1.3477 and 1.3586

 

OANDA’s Open Positions Ratio

EUR/USD ratio continues the movement we have seen throughout the week, in the direction of short positions. The euro has surged higher, and the increase in the short position component is likely due to numerous long positions being covered. We are seeing substantial movement in the ratio, which was closely split in late May, but now has a strong majority of short positions. This indicates that trader sentiment is strongly biased to the pair undergoing a correction and moving lower.

ECB rate announcements often cause turbulence in the currency markets, and this was again the case on Thursday, as the euro posted sharp gains. We could see more volatility before the week is over, as the US releases more key employment numbers later today.

 

EUR/USD Fundamentals

  • 6:00 German Trade Balance. Estimate 16.5B. Actual 17.7B.
  • 6:45 French Government Budget Balance. Actual -66B.
  • 6:45 French Trade Balance. Estimate -4.4B. Actual -4.5B.
  • 10:00 German Industrial Production. Estimate 0.0%.
  • 12:30 US Non-Farm Employment Change. Estimate 167K.
  • 12:30 US Unemployment Rate. Estimate 7.5%.
  • 12:30 US Average Hourly Earnings. Estimate 0.2%.
  • 19:00 US Consumer Credit. Estimate 13.4B.

 

*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.