EUR/USD – Losing Ground as Markets Eye ECB Rate Announcement

EUR/USD has started the month of August with a bang, as the pair is displaying volatility in Thursday’s European trade. The pair crossed below the 1.33 line and has dropped to the mid-1.32 range. Taking a look at the Eurozone, Italian and Eurozone Manufacturing PMIs move higher, but Spanish Manufacturing PMI failed to keep pace. Later on Thursday, the ECB releases its rate statement, followed by a press conference with ECB president Mario Draghi. In the US, there are two key releases – Unemployment Claims and ISM Manufacturing PMI. On Wednesday, the Federal Reserve released its policy statement, and said it would continue with the present levels of QE.

Anyone expecting dramatic news from the Federal Reserve on Wednesday came home empty-handed. As expected, the Fed said it would continue with the present level of QE, which involves $85 billion in asset purchases each month, and gave no indication about when it might scale down QE. There has been talk that the Fed could taper QE as early as September, and the speculation and uncertainty will likely cause volatility in the markets so long as the Fed doesn’t show its cards. The Fed also noted that the US economy was growing at a “modest” pace and voiced concern about a rise in inflation.

The ECB will be in the spotlight later on Thursday, as the central bank sets the new benchmark interest rate. However, it is the accompanying press conference with ECB head Mario Draghi which has moved the markets in recent months. Will Draghi again make some comments that affect the euro? Analysts are betting that the interest rate will remain at 0.50%, as rates are already so low that a reduction would not have a strong impact. The ECB has hinted that it is considering non-conventional monetary measures, such as negative deposit rates and forward guidance. If Draghi does state that the ECB could implement these measures, we could see the euro lose ground.

The Eurozone released some Manufacturing PMIs earlier on Thursday, and the news was mostly positive. Italian Manufacturing PMI impressed crossing above the 50 level for the first time in two years, rising from 49.1 to 50.4 points. The 50 level separates between contraction and expansion.  It was a very similar result for  the Eurozone Final Manufacturing PMI, which jumped from 48.8 to 50.3 points. This was also its first reading above 50 since August 2011. However, Spanish Manufacturing PMI fell, dropping from 50.0 to 49.8 points.

The markets are getting a good look at German economic numbers, with four German releases so far this week. The releases have been mostly positive, pointing to some improvement in the Eurozone’s largest economy. Earlier in the week, GfK Consumer Climate rose to 7.0 points, its highest level in six years. On the inflation front, Preliminary CPI posted a solid gain of 0.5%. Unemployment Change looked sharp, dropping by 7 thousand, much lower than the estimate of -1 thousand. The spoiler was German Retail Sales, which declined by 1.5%, its worst showing since January. With general elections in Germany scheduled for September, every economic release has added significance and will be under the microscope during the election campaign.

 

 

EUR/USD for Thursday, August 1, 2013

 

Forex Rate Graph 21/1/13
EUR/USD August 1 at 10:05 GMT

EUR/USD 1.3234 H: 1.3311 L: 1.3228

 

EUR/USD Technical

S3 S2 S1 R1 R2 R3
1.3050 1.3100 1.3162 1.3275 1.3400 1.3476

 

EUR/USD has lost ground in Thursday trading, but the proximate support and resistance lines remain in place (S1 and R1 above). The pair dropped below the 1.33 in the Asian session, and continues to fall in European trade. 1.3275 is providing resistance. This is not a strong line and could face pressure if the euro can muster some momentum. The round number of 1.34 is stronger.

On the downside, the pair continues to receive strong support at 1.3162. This is followed by support at the round number of 1.31.

  • Current range: 1.3162 to 1.3275

 

Further levels in both directions:

  • Below: 1.3162, 1.3100, 1.3050, 1.3000 and 1.2943
  • Above: 1.3275, 1.34, 1.3476, 1.3585 and 1.3649

 

OANDA’s Open Positions Ratio

EUR/USD ratio has reversed directions and is pointing to movement towards long positions. This is not reflected in what we are currently seeing from the pair on Thursday, as the euro has lost ground against the dollar. Short positions continue to comprise a very substantial majority of the open positions, indicating a strong trader bias towards the US dollar continuing to post gains against the euro.

EUR/USD has lost ground on Thursday trading and remains under pressure. The volatility could continue as the US releases key employment and manufacturing numbers later in the day.

 

EUR/USD Fundamentals

  • 7:15 Spanish Manufacturing PMI. Estimate 50.7 points. Actual 49.8 points.
  • 7:45 Italian Manufacturing PMI. Estimate 49.8 points. Actual 50.4 points.
  • 8:00 Eurozone Final Manufacturing PMI. Estimate 50.1 points. Actual 50.3 points.
  • 11:30 US Challenger Job Cuts.
  • 11:45 ECB Minimum Bid Rate. Estimate 0.50%. Actual 0.50%.
  • 12:30 ECB Press Conference.
  • 12:30 US Unemployment Claims. Estimate 346K.
  • 13:00 US Final Manufacturing PMI. Estimate 52.1 points.
  • 14:00 US ISM Manufacturing PMI. Estimate 52.1 points.
  • 14:00 US Construction Spending. Estimate 0.4%.
  • 14:00 US ISM Manufacturing Prices. Estimate 53.0 points.
  • 14:30 US Natural Gas Storage. Estimate 55B.
  • All Day: US Total Vehicle Sales. Estimate 15.8M.

 

*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.