Euro Struggling, Slips Under 1.10

EUR/USD is showing little movement on Tuesday, as the pair trades slightly below the 1.10 line in Tuesday’s European session. It could shape up to be an uneventful day, as there are no major events on the schedule. In the Eurozone, Spanish unemployment rolls were much higher than expected, with a reading of 82.3 thousand. Later today, we’ll get a look at US Factory Orders, with the markets expecting a decline of 0.8%. Traders should keep a close eye on several US key events on Wednesday, led by Nonfarm Payrolls. As well, Janet Yellen will testify before the House Financial Services Committee in Washington.

The month of October was not kind to the euro. EUR/USD was as high as 1.1495 last month, but was hammered by the ECB and the Federal Reserve in late October, losing some 350 points as a result of statements from the two central banks. In the case of the ECB, a broad hint of further  sent the euro tumbling. Last week, the euro again took it on the chin, as the Federal Reserve surprised the markets, stating that a rate hike in December was very much on the table. Fortunately for the euro, there are no ECB press conferences or Federal Reserve statements until December. Still, the continental currency remains under pressure as it struggles to stay above the symbolic 1.10 level, as the markets remain glued for any hints of monetary moves from the central banks. The Eurozone continues to suffer from weak growth and a lack of inflation, and unless Eurozone releases show marked improvement, the euro will have trouble holding its own against the US dollar.

On Monday, the markets got a look at Eurozone manufacturing data. German and Eurozone Manufacturing PMIs came in above the 52 line, indicative of modest growth in the manufacturing sectors. On Friday, Eurozone releases were a mix. German Retail Sales came in at a flat 0.0%, well off the estimate of 0.4%. Eurozone CPI came in at 0.0% and Core CPI at 1.0%, both within expectations. Still, these figures are far short of the ECB’s inflation target of 2%, leaving the ECB under strong pressure to increase easing and kick-start the weak economy. There was some positive news on the labor front, as the Eurozone unemployment rate dipped to 10.8%, surprising the markets which had forecast 11.0%. The September report marked just the second time that unemployment has been under the 11.0% level in over three years. Another drop in unemployment next month could bolster the euro and ease the pressure on the ECB to increase monetary stimulus.

Last week, the Federal Reserve caught the markets off guard with a hawkish policy statement. The Fed stated that a rate hike was a possibility in December, depending on the strength of employment and inflation numbers. The markets had essentially written off a move by the Fed before 2016, so the statement caused sharp volatility in the currency markets, with the US dollar showing broad gains after the dust had settled. The next Fed meeting is mid-December, and the markets will be in alert mode for any further hints about a rate hike. As well, upcoming key US numbers will be closely monitored, especially employment and inflation data, as the strength of these numbers will play a critical role in determining whether the Fed presses the rate trigger in December. Still, traders should keep in mind that the markets sometimes overreact to Fed statements or comments from Fed policymakers, and the central bank could easily continue to wait on the sidelines until 2016.

With the Federal Reserve statement behind us, the markets are once again focused on economic releases. There was much anticipation ahead of the US Advance GDP for the third quarter, which was released on Thursday. As it turned out, this key event didn’t shake up the markets, as the reading of a 1.5% gain was almost identical to the forecast of 1.6%. Still, this figure was much lower than the Q2 Final GDP of 3.9%, pointing to a slowdown in the US economy. Meanwhile, Unemployment Claims beat the estimate for a fourth straight week, coming in at 260 thousand. The estimate stood at 264 thousand. Will the upcoming Nonfarm Payrolls also beat the forecast? On Friday, US key releases wound up the week on a positive note. Employment Cost Index jumped 0.6%, pointing to an increase in wages for US workers. The UoM Consumer Sentiment, an important gauge of consumer confidence, improved to 90.0 points, within expectations.

EUR/USD Fundamentals

Tuesday (Nov. 3)

• 8:00 Spanish Unemployment Change. Estimate 70.3K. Actual 82.3K.
• 15:00 US Factory Orders. Estimate -0.8%
• 15:00 US IBD/TIPP Economic Optimism. Estimate 47.5 points
• All Day – US Total Vehicle Sales. Estimate 17.8M
• 19:00 ECB President Mario Draghi Speaks.

Upcoming Key Events

Wednesday (Nov. 4)

• 9:00 ECB President Mario Draghi Speaks
• 13:15 US ADP Nonfarm Employment Change. Estimate 183K
• 13:30 US Trade Balance. Estimate -42.7B
• 15:00 Federal Reserve Chair Janet Yellen Testifies
• 15:00 US ISM Non-Manufacturing PMI. Estimate 56.6 points

*Key releases are highlighted in bold

*All release times are GMT

EUR/USD for Tuesday, November 3, 2015

EUR/USD November 3 at 9:10 GMT

EUR/USD 1.0982 H: 1.1030 L: 1.0990

EUR/USD Technical

• EUR/USD was flat in the Asian session and has posted slight losses in the European session.
• 1.10117 continues to vacillate between resistance and support. It is back in a resistance role and could see further action during the day.
• 1.0941 is a weak support line.
• Current range: 1.0941 to 1.1017

Further levels in both directions:

• Below: 1.0941, 1.0847 and 1.0659
• Above: 1.1017, 1.1105, 1.1214 and 1.1296

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged, consistent with the lack of significant movement shown by the pair. The ratio is currently evenly split between long and short positions,  indicating a lack of trader bias as to what direction the pair will take.

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.