EUR/USD – Sharp Drops As ECB Lowers Rates

EUR/USD slid sharply on Thursday, as the ECB surprised the markets and cut interest rates by 0.25%, to 0.25%. The euro reacted sharply to the news, dropping over 100 points on the day. The pair has stabilized on Friday, trading just above the 1.34 line. In economic news, French releases disappointed, as Industrial Production declined and the trade deficit widened. However, Germany’s trade surplus surged to its highest levels in almost six years. Over in the US, all eyes are on Non-Farm Employment Change, with the markets bracing for a weak reading. There are two other key events out of the US on Friday – the Unemployment Rate and Preliminary UoM Consumer Sentiment. The week wraps up with Federal Reserve head Bernard Bernanke addressing an IMF event in Washington.

The ECB surprised the markets on Thursday when it reduced its benchmark interest rates by 0.25%, to a record low rate of 0.25%. The marginal rate was cut to 0.75% from 1.0%, while the deposit rate was left at unchanged at 0.0%. Following the decision, ECB head Mario Draghi stated that inflation in the Eurozone remains very low and that this would likely continue in the coming months. He added that further monetary easing remained an option until economic conditions improved. The markets had expected the ECB to hold rates at 0.50%, but a combination of weak growth and inflation well below the ECB’s target of 2% led to the ECB cutting rates for the first time since April.

US employment numbers will be in the spotlight on Friday, with the release of Non-Farm Payrolls and the Unemployment Rate. NFP, a critical event which could move EUR/USD, is expected to fall to 121 thousand in October. However, it should be noted that the government shutdown in October resulted in some workers being removed from payrolls, which would explain the low October forecast. On Thursday, Unemployment Claims looked solid, coming in at 336 thousand, matching the forecast. An unexpectedly strong NFP release would likely fuel speculation of a possible QE tapering in December.

The French economy continues to disappoint, as Industrial Production declined 0.5%, well off the estimate of a 0.4% gain. This marked the fourth decline for the manufacturing indicator in five releases. The trade surplus widened to -5.8 billion euros in October, a four-month high. This was well off the forecast of -4.7 billion. Adding oil to the fire, the Standard and Poor’s credit rating agency downgraded France’s sovereign rating one notch, from AA+ to AA. In October, S&P stated that although France had emerged from the recession, long-term growth prospects were “mired in risks and uncertainties”. However, the outlook has improved from negative to stable, meaning that another downgrade is unlikely in the next two years.

Germany is the Eurozone’s largest economy, so the Eurozone and the euro are sensitive to German releases. This week’s data has been a mixed bag, making it difficult to predict in which direction the German economy is headed. Factory Orders jumped 3.3% in October, bouncing back from a decline of 0.3% in September. This was well above the estimate of 0.6%. However, Industrial Production failed to keep pace, posting a decline of 0.9%, compared to a strong 1.4% the month before. The estimate stood at 0.2%. The week ended on a strong note, as Trade Balance widened to 18.8 billion, up from 15.6 billion the month before. It was the highest reading since December 2007.

 

EUR/USD for Friday, November 8, 2013

Forex Rate Graph 21/1/13

EUR/USD November 8 at 10:50 GMT

EUR/USD 1.3525 H: 1.3528 L: 1.3489

 

EUR/USD Technical

S3 S2 S1 R1 R2 R3
1.3325 1.3410 1.3500 1.3585 1.3649 1.3786

 

  • EUR/USD is trading quietly on Friday, slightly above the 1.35 line. The pair briefly dipped below 1.35 in the Asian session.
  • On the downside, 1.3500 is providing weak support and could see further activity during the day. This is followed by a stronger support line at 1.3410.
  • The pair continues to face resistance at 1.3585. Next there is 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, 1.3265 and 1.3149
  • Above: 1.3585, 1.3649, 1.3786 and 1.3893

 

OANDA’s Open Positions Ratio

EUR/USD ratio is pointing to sharp gains by short positions. This is reflected in the euro’s sharp losses against the dollar on Thursday. A large majority of the open positions are short, indicative of a trader bias towards the dollar continuing to post gains against the euro.

After taking a tumble on Thursday, the euro has steadied in Friday trading. With the US releasing Non-Farm Payrolls and key consumer data later today, we could see some volatility from the pair in the North American session.

 

EUR/USD Fundamentals

  • 7:00 German Trade Balance. Estimate 17.2B. Actual 18.8B.
  • 7:45 French Industrial Production. Estimate 0.4%. Actual -0.5%.
  • 7:45 French Government Budget Balance. Actual -80.8B.
  • 7:45 French Trade Balance. Estimate -4.7B. Actual -5.8B.
  • 13:30 US Non-Farm Employment Change. Estimate 121K.
  • 13:30 US Unemployment Rate. Estimate 7.3%.
  • 13:30 US Average Hourly Earnings. Estimate 0.2%.
  • 13:30 US Personal Spending. Estimate 0.3%.
  • 13:30 US Core PCE Price Index. Estimate 0.1%.
  • 13:30 US Personal Income. Estimate 0.3%.
  • 14:55 US Preliminary UoM Consumer Sentiment. Estimate 74.6 points.
  • 14:55 US Preliminary UoM Inflation Expectations.
  • 18:10 President Barak Obama Speaks.
  • 20:30 Fed Chairman Bernard Bernanke Speaks. Bernanke will address an IMF conference in Washington.

 

*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.