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EUR/USD – Euro Slide Continues As Markets Mull Yield Differentials

EUR/USD continues to post losses this week, as the pair trades in the mid-1.35 range in the European session on Tuesday.  The euro has slid close to one cent so far this week, as the ECB has cut interest rates, while the US is expected to move in the opposite direction. On the release front, French Industrial Production improved in May, posting a five-month high. In the US, today’s highlight is JOLTS Job Openings.

The markets continue to digest the monetary moves taken by the ECB last week. Although the interest rate cuts were not drastic, they nonetheless represented firm action by the ECB, and Mario Draghi has stated that more action could follow if deemed necessary. Meanwhile, with the Federal Reserve continuing to trim its QE program, there is a strong likelihood that US rates will move upwards in 2015. Thus we have a situation where European and US yields are likely to move in opposite directions, which have given a boost to the US dollar.

In the US, employment numbers were solid late last week. Unemployment Claims and Nonfarm Payrolls, both key indicators, met market expectations and helped the dollar hold its own against the euro. Unemployment Claims came in at 312 thousand, slightly above the estimate of 309 thousand. Nonfarm Employment Change met modest expectations on Friday, adding 217 thousand new jobs. The estimate stood at 214 thousand. The Unemployment Rate stayed pegged at 6.3%, beating the estimate of 6.4%. Solid employment numbers add to the likelihood that the Federal Reserve will continue to trim its QE program, which it plans to wind up by the end of 2014.

The ECB’s rate cuts last week are a belated response to weak growth and low inflation in the Eurozone, but the markets had expected more. The cut in the benchmark rate was not as deep as anticipated, and many market players were looking for an asset purchase program, such as the schemes adopted by the Federal Reserve and Bank of England. The euro did drop as low as the 1.35 line following the ECB move, but recovered and is back at levels prior to the ECB announcement. It’s safe to say that the markets were underwhelmed by the ECB’s actions [1], with one analyst saying the ECB had fired a lot of small bullets rather than resorting to a bazooka.

 

EUR/USD for Tuesday, June 10, 2014

EUR/USD June 10 at 9:05 GMT

EUR/USD 1.3561 H: 1.3602 L: 1.3557

 

EUR/USD Technical

S3 S2 S1 R1 R2 R3
1.3219 1.3346 1.3487 1.3585 1.3649 1.3786

 

Further levels in both directions:

 

OANDA’s Open Positions Ratio

EUR/USD ratio is pointing to gains in long positions on Tuesday, continuing the trend which started the week. This is not consistent with the movement of the pair, as the euro continues to post losses. The ratio currently has a majority of long positions, indicative of trader bias towards the euro improving against the dollar.

EUR/USD continues to soften. The pair is under pressure in the European session.

 

EUR/USD Fundamentals

*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 [5]

Currency Analyst at Market Pulse [6]
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.