EUR/USD: Euro Steady as PMIs Disappoint

EUR/USD is stable on Monday, as the pair trades slightly below the 1.36 line in the European session. On the release front, the week started off on a sour note as Eurozone, German and French PMIs all softened in May. In the US, today’s highlight is Existing Home Sales, a key event.

Eurozone PMIs are key indicators of growth in the services and manufacturing sectors, and across the board, the May data was worse than a month earlier. The German and Eurozone numbers remained above the 50-point level, pointing to expansion. However, the French figures remained below the 50 mark, pointing to continuing contraction in the manufacturing and services sectors of the Eurozone’s second largest economy. A worrying trend is that with the exception of Eurozone Services PMI, all of the PMIs posted their weakest reading in 2014.

Unlike his peers at the BOE and Federal Reserve, ECB head Mario Draghi is not being coy about possible interest rate hikes. On the weekend, Draghi stated flat out that he did not foresee the ECB raising rates before 2017. Draghi noted that the ECB had extended access by European banks to unlimited liquidity until that time, and that the Eurozone recovery was still weak. However, traders should not treat Draghi’s remarks as etched in stone, as the ECB will likely have to raise rates if the economy recovers faster than anticipated.

There was positive economic news out of the US on Thursday, as Unemployment Claims dipped to 312 thousand last week, beating the estimate of 316 thousand. As well, the Philly Fed Manufacturing Index, which has been on the upswing for most of 2014, continued the trend and improved to 17.8 points, crushing the estimate of 14.3. This was the index’s strongest reading since last August, and points to a manufacturing sector which is expanding in order to keep up with increasing demand. The ECB lowered interest rates to record levels earlier in June, so we’ll have to wait for the June PMI numbers to see if the ECB moves lead to an improvement in PMI figures.

On Wednesday, the Federal Reserve continued to taper to its QE program, reducing the scheme by $10 billion, to $35 billion/month. If all goes as planned, the Fed could wind up QE in the fall. The Fed also hinted that interest rates will continue to stay low for the foreseeable future, which likely means that we won’t see any rate hikes before the first quarter of 2015. With regard to economic activity, the Fed noted that the recovery is continuing, but it reduced its forecast of economic growth to 2.1-2.3%, down from an earlier forecast of around 2.9 percent. The bottom line? There were no dramatic items in the Fed statement, with one analyst describing current Fed policy as “steady as she goes”. The perception that US interest rates will remain at ultra-low levels weighed on the US dollar last week.

 

EUR/USD for Monday, June 23, 2014

EUR/USD June 23 at 10:25 GMT

EUR/USD 1.3579 H: 1.3614 L: 1.3575

 

EUR/USD Technical

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

 

  • EUR/USD has edged lower on Monday. The pair dipped below the 1.36 early in the European session.
  • 1.3487 is providing strong support.
  • On the upside, 1.3585 has switched to a resistance role. It is a weak line and saw action earlier in the day. There is stronger resistance at 1.3649.
  • Current range: 1.3487 to 1.3585

Further levels in both directions:

  • Below: 1.3487, 1.3346, 1.3219 and 1.3105
  • Above: 1.3585, 1.3649, 1.3786 and 1.3893

 

OANDA’s Open Positions Ratio

EUR/USD ratio is pointing to gains in short positions on Monday. This is not consistent with the pair’s movement, as the euro is down slightly . The ratio is close to an even split of short and long positions, indicative of a lack of trader bias as to the future movement of EUR/USD.

EUR/USD is not showing much movement to kick off the week. The pair has edged lower in the European session.

 

EUR/USD Fundamentals

  • 7:00 French Flash Manufacturing PMI. Estimate 49.6 points. Actual 47.8 points.
  • 7:00 French Flash Services PMI. Estimate 49.5 points. Actual 48.2 points.
  • 7:30 German Flash Manufacturing PMI. Estimate 52.7 points. Actual 52.4 points.
  • 7:30 German Flash Services PMI. Estimate 55.8 points. Actual 54.8 points.
  • 8:00 Eurozone Flash Manufacturing PMI. Estimate 52.2 points. Actual 51.9 points.
  • 7:30 Eurozone Flash Services PMI. Estimate 53.4 points. Actual 52.8 points
  • 13:45 US Flash Manufacturing PMI. Estimate 56.1 points.
  • 14:00 US Existing Home Sales. Estimate 4.74M.

*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.