EUR/USD – Euro Soars After Strong PMIs

EUR/USD surged in Thursday trading, jumping about 150 points. The pair has steadied on Friday, as it trades in the high-1.36 range early in the European session. The euro took advantage of solid Eurozone PMI data on Thursday. In the US, Unemployment Claims posted another respectable reading, but Existing House Sales continued its downward trend. On Friday, Italian Retail Sales missed the estimate with a weak reading of 0.0%. Later in the day, ECB President Mario Draghi will address the World Economic Forum in Davos, Switzerland.

Eurozone PMIs were strong on Thursday, giving a big boost to the euro. French Service and Manufacturing PMIs beat the estimates, although both remain in contraction stage, under the 50-point level. German Manufacturing PMI posted a gain in December, but the Services PMI dipped lower, missing the estimate. Eurozone Services and Manufacturing PMIs both beat the estimates. There was more good news from Eurozone Current Account, which posted a surplus of 23.5 billion euros, up from 21.8 billion in November. This easily beat the estimate of 19.2 billion. These readings are welcome news, as recent Eurozone releases have not looked impressive.

Over in the US, Unemployment Claims was unchanged at 326 thousand, another strong reading for one of the most important economic indicators. This beat the estimate of 331 thousand, the third straight week that the reading has surpassed the forecast. US Exiting Home Sales was unable to keep pace, however. The key indicator dropped to 4.87 million, down from 4.90M a month earlier and shy of the estimate of the 4.94 million. This was the indicator’s fourth consecutive drop, adding to concern about the health of the US housing industry.

We continue to see weak inflation numbers out of Europe and this was underscored by Monday’s release of German PPI, which posted a paltry gain of 0.1% in December. As inflation indicators remain listless, concerns of deflation are increasing. ECB President Mario Draghi didn’t have much to offer at the ECB’s last policy meeting, reiterating that monetary policy will remain accommodative for as long as is needed to help the Eurozone economy recover, and that interest rates will likely remain at present or lower levels for the foreseeable future. If growth and inflation indicators continue to look sluggish, the ECB may have to take action at its next policy meeting in February, such as lowering the benchmark interest rate or reducing deposit rates into negative territory.

Spain has been a pleasant surprise, reeling off some strong numbers in recent readings. However, it was more of the same from the Unemployment Rate, which was unchanged in Q4 at 26.0%. This marks the sixth straight quarter that the unemployment rate has been above 25%.The economy is slowing slight growth, but unemployment is expected to remain at these very high levels.

The World Economic Forum continues in Davos, Switzerland. The prestigious event brings together political officials, head of foreign banks and business people from dozens of countries meet, mingle and conduct business. ECB head Mario Draghi will participate in a panel discussion later on Friday. Traders should note that currency markets can be affected by statements issued at the forum, particularly those made by central bankers or other senior officials.

EUR/USD for Friday, January 24, 2014

EUR/USD January 24 at 9:30 GMT

EUR/USD 1.3676 H: 1.3705 L: 1.3565

EUR/USD Technical

• EUR/USD is showing little change in Friday trading. The pair briefly moved above the 1.37 late in the European session.
• 1.3649 has reverted to a support line following sharp gains by the euro on Thursday. This is a weak line which could face pressure during the day. This is followed by stronger support at 1.3585.
• 1.3786 is providing strong resistance. This is followed by a resistance line at 1.3893, which has remained intact since late December.
• Current range: 1.3649 to 1.3786

Further levels in both directions:

• Below: 1.3649, 1.3585, 1.3410, 1.3347 and 1.3257
• Above: 1.3786, 1.3893, 1.4000 and 1.4153

OANDA’s Open Positions Ratio

EUR/USD ratio has reversed directions in Friday trading, pointing to gains in short positions. This is consistent with what we are seeing from the pair, as the euro has edged lower. The ratio is made up largely of short positions, indicative of a trader bias towards the dollar moving higher against the euro.

After a listless week, the euro sprang into action on Thursday and shot higher. EUR/USD has steadied on Friday and is not showing much movement.

EUR/USD Fundamentals

• 9:00 Italian Retail Sales. Estimate 0.4%. Actual 0.0%.
• 14:00 Belgian NBB Business Climate. Estimate -4-4 points.
• 17:00 ECB President Mario Draghi Speaks.
• Day 3 – World Economic Forum Annual Meetings.

*Key releases are highlighted in bold

*All release times are GMT

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