EUR/USD – Euro Surges 300 Points as ECB Stands Pat

EUR/USD surged on Thursday, gaining some 300 points following the ECB policy meeting. On Friday, the pair is trading slightly below the 1.09 line in the European session. Taking a look at economic releases on Friday, German Factory Orders beat expectations with a gain of 1.8%. In the US, it’s a busy day with three major events – Average Hourly Earnings, Nonfarm Payrolls and the Unemployment Rate.

The euro had a banner day on Thursday, rocketing close to the 1.10 line before settling down and closing at 1.0920, good for huge gains against the US dollar. The markets had expected some significant monetary measures from Mario Draghi and company, but the head of the ECB played it safe, opting to do little more than tweak current monetary policy. The ECB announced that the interest on deposits would be lowered from -0.20 to -0.30 percent, and the QE asset purchase program of EUR 60 billion/year would be extended for an additional six months, to March 2017. Given the lethargic Eurozone economy, the markets had expected much more, such as substantial increase to the asset purchase program or reductions to other interest rates. The lack of any substantial moves by the ECB clearly caught the markets by surprise, and the euro responded with gains of some 3 percent against the dollar, its sharpest jump since March 2009. Will these minor steps help a struggling Eurozone? The Eurozone economy is in deep trouble, beset by inflation, high unemployment and weak growth. Germany, the bloc’s largest economy, although in better shape than the rest of the bloc, has also been affected by the malaise which has hit the continent as well as the global slowdown. The euro may have dodged a bullet for now, but could easily return to is losing ways before the year is over.

US PMIs, key gauges of economic activity, have not had a particularly good week. On Tuesday, ISM Manufacturing PMI slipped to 48.6 points in November. This figure fell short of the estimate of 50.6 points, and marked the first contraction of the index since May 2013. Recent manufacturing releases were also soft, as the US manufacturing sector continues to struggle. There wasn’t any relief from ISM Non-Manufacturing PMI on Thursday, as the index slipped to 55.9 points, well short of the forecast of 58.1 points. This marked a six-week low for the indicator. The silver lining is that although the index took a hit in November, the reading was still above the 50 line, indicative of expansion.

In the US, this week’s employment numbers kicked off in style, with a strong surge from ADP Nonfarm Payrolls. The key indicator climbed to 217 thousand, easily beating the estimate of 191 thousand. This marked a sharp rebound from the previous release of 182 thousand. On Thursday, we’ll get a look at Unemployment Claims, with the markets expecting the indicator to rise to 269 thousand. The employment event parade concludes on Friday, with the official Nonfarm Payrolls report. The markets are braced for a strong downturn, with an estimate of 201 thousand. With the markets abuzz over continuing speculation about a rate hike later in the month, NFP will be under the market microscope and could result in volatility on the currency markets.

EUR/USD Fundamentals

Friday (Dec. 4)

• 7:00 German Factory Orders. Estimate 1.3%. Actual 1.8%
• 9:10 Eurozone Retail PMI. Actual 48.5 points
• 13:30 US Average Hourly Earnings. Estimate 0.2%
• 13:30 US Nonfarm Employment Change. Estimate 201K
• 13:30 US Unemployment Rate. Estimate 5.0%
• 13:30 US Trade Balance. Estimate -40.6B

*Key releases are highlighted in bold

*All release times are GMT

EUR/USD for Friday, December 4, 2015

EUR/USD December 4 at 9:45 GMT

EUR/USD 1.0888 H: 1.0956 L: 1.0858

EUR/USD Technical

• EUR/USD easily broke about several resistance lines, with huge gains on Thursday
• On the downside, 1.0847 is under pressure.
• 1.0941 is a weak resistance line.
• Current range: 1.0847 to 1.0941

Further levels in both directions:

• Below: 1.0847, 1.0732 and 1.0659
• Above: 1.0941, 1.1087 and 1.1172

OANDA’s Open Positions Ratio

EUR/USD ratio showed sharp movement towards short positions as the pair climbed sharply on Thursday. This reflects many long positions being covered. Long positions are currently a minority (39%), indicative of the euro losing ground.

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.