EUR/USD – Euro Steady After Sharp Losses

After sustaining sharp losses last week, EUR/USD is steady on Monday. The pair is trading slightly above the 1.35 line in Monday’s European session. The euro surrendered was in freefall last week, coughing up 300 points against the US dollar. In economic news, Spanish Manufacturing PMI came in very close to the estimate, but Italian Manufacturing PMI fell short of expectations. Over in the US, it’s a quiet start to the week, as the only items on the schedule are Factory Orders and speeches by two Federal Reserve policymakers.

It was a was a week to forget for the euro, which lost around 300 points and closed the week below the 1.35 line. German data disappointed and Eurozone CPI dropped to 0.7% in October, compared to 1.1% the month before. This is well below the ECB’s inflation target of 2.0%. The euro finds itself at a six-week low against the dollar, and speculation is growing that the ECB might reduce interest rates in order to boost growth, perhaps as early as this week. The ECB meets for a policy meeting on Thursday, and the possibility of a rate cut is sure to be discussed. However, with rates already at a record low of 0.50%, a cut of 0.25% might not have a lot of impact. So we could end up with lots of talk from ECB head Mario Draghi without any action at the upcoming policy meeting.

The Federal Reserve met for a policy meeting last week, the first since Congress reached an agreement on the debt ceiling and the shutdown. As expected, the Fed said that it would maintain QE at current levels of $85 billion each month. However, the Fed’s policy statement was less dovish than expected, as the Fed noted that the economy was expanding “at a moderate pace” and left the door open for QE tapering in December. However, the prevailing view in the markets is that short of a sharp turnaround in US numbers, QE tapering will be on hold until early 2014.

German data continues to concern the markets. Retail Sales posted its third decline in four releases, and Consumer Climate and Import Prices both fell short of their estimates. Earlier this week, German Unemployment Change came in at 2 thousand in September, just above the estimate of 1 thousand. Although this is a decent reading, this is the indicator’s third consecutive increase, raising concerns that the German economy is slowing down. The jobless rate was unchanged at 6.9 percent. If the Eurozone is to remain out of recession, it can ill afford for Germany, the region’s number one economy, to slow down.

EUR/USD for Monday, November 4, 2013

EUR/USD November 4 at 10:40 GMT

EUR/USD 1.3507 H: 1.3513 L: 1.3447

EUR/USD Technical

• With EUR/USD posting sharp drops, we start this week at lower levels.
• On the downside, the pair is testing the round number of 1.3500. This is followed by a support line at 1.3410, which has remained firm since mid-September.
• The pair is facing resistance at 1.3585. It is followed by a resistance line at 1.3649.
• Current range: 1.3500 to 1.3585

Further levels in both directions:

• Below: 1.3500, 1.3410, 1.3325 and 1.3265
• Above: 1.3585, 1.3649, 1.3786, 1.3893 and 1.4000

OANDA’s Open Positions Ratio

EUR/USD ratio is showing strong gains by long positions. With the euro dropping sharply, many short positions have been covered, resulting in a larger percentage of open long positions. The ratio continues to have a majority of short positions, indicating a trader bias towards the US dollar continuing to move higher against the euro.

EUR/USD is having a quiet day, in sharp contrast to the volatility which marked the pair last week. With no major releases on the schedule on Monday, we could see the pair continue to trade quietly.

EUR/USD Fundamentals

• 8:15 Spanish Manufacturing PMI. Estimate 51.0 points. Actual 50.9 points.
• 8:45 Italian Manufacturing PMI. Estimate 51.1 points. Actual 50.7 points.
• 9:00 Eurozone Final Manufacturing PMI. Estimate 51.3 points. Actual 51.3 points.
• 9:30 Eurozone Sentix Investor Confidence. Estimate 6.6 points.
• 15:00 US Factory Orders. Estimate 1.9%.
• 15:00 US Factory Orders (Aug. Data). Estimate 0.2%.
• 16:40 US FOMC Member Jerome Powell Speaks.
• 21:00 US FOMC Member Eric Rosengren Speaks.

*Key releases are highlighted in bold

*All release times are GMT

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