EUR/USD – Euro Steady at 1.15, Eurozone Service PMIs Next

EUR/USD is almost unchanged on Wednesday, continuing the limited activity which marked the Tuesday session. The pair is trading at the 1.15 line in the European session. On the release front, it’s a data-heavy day for both the Eurozone and the US. The markets will be keeping a close eye on German and Eurozone Services PMIs. In the US, there are two key events on the schedule – ADP Nonfarm Employment Change and ISM Non-Manufacturing PMI.

The euro continues to trade at high levels this week. EUR/USD briefly pushed across the 1.16 line on Tuesday, its highest level since August 2015. The euro’s recent gains are more a case of dollar weakness than euro strength, as Eurozone data has not been particularly strong. Germany, the bloc’s largest economy, posted soft numbers last week. Preliminary CPI came in at -0.2%, its first decline in four months. Retail Sales, the primary gauge of consumer spending, posted a sharp decline of 1.1%. The markets had expected a gain of 0.3%.

With Eurozone inflation stuck at low levels, the nightmarish scenario of deflation remains a major concern for the ECB. The central bank has tried to fight back, lowering interest rates to zero and expanding its asset purchase program, but inflation hasn’t improved. In April, Eurozone CPI declined 0.2%, weaker than the estimate of -0.1%. This marked a third straight decline in consumer inflation, and analysts expect that Draghi will have to take further steps to extricate the Eurozone from the threat of deflation. The ECB has set an inflation target of close to 2.0%, but clearly that goal will not be achieved anytime soon. Despite the dismal inflation numbers, the economy continues to expand. Eurozone GDP grew by 0.6% in the first quarter, compared to a 0.3% gain in the fourth quarter of 2015. The French and Spanish economies grew 0.5% and 0.8% respectively in the first quarter, and Germany will release its GDP report next week.

Market attention will again shift to the US labor market, starting with the release of ADP Nonfarm Payrolls on Wednesday. This will be followed by Unemployment Claims and the all-important Nonfarm Payrolls later in the week. The employment picture has been a bright spot in the US economy, as unemployment remains at very low levels and Nonfarm Payrolls have been above the 200-thousand threshold. Despite the robust labor market, however, consumer confidence and spending has not kept pace. Last week, UoM Consumer Sentiment dipped to 89.0 points short of the estimate of 90.3 points. This also marked the fourth straight drop for the key indicator. Consumer spending is a key engine of economic activity, and softer numbers in the first quarter were an important reason that US GDP weakened in the first quarter, with a lukewarm reading of 0.5%.

EUR/USD Fundamentals

Wednesday (May 4)

• 6:45 French Trade Balance. Estimate -4.2B. Actual -4.4B
• 7:00 Spanish Unemployment Change. Estimate -86.6K. Actual -83.6K
• 7:15 Spanish Services PMI. Estimate 55.1
• 7:45 Italian Services PMI. Estimate 51.3
• 7:50 French Final Services PMI. Estimate 50.8
• 7:55 German Final Services PMI. Estimate 50.5
• 8:00 Eurozone Final Services PMI. Estimate 53.3
• 9:00 Eurozone Retail Sales. Estimate 0.1%
• Tentative – French 10-year Bond Auction
• 10:15 German Buba President Jens Weidmann Speaks
• 12:15 US ADP Nonfarm Employment Change. Estimate 205K
• 12:30 US Preliminary Nonfarm Productivity. Estimate -1.3%
• 12:30 US Preliminary Unit Labor Costs. Estimate 2.9%
• 12:30 US Trade Balance. Estimate -45.6B
• 13:45 US Final Services. Estimate 52.1
• 14:00 US ISM Non-Manufacturing PMI. Estimate 54.9
• 14:00 US Factory Orders. Estimate 0.7%
• 14:30 US Crude Oil Inventories. Estimate 0.6M

Upcoming Key Events

Thursday (May 5)

• 12:30 US Unemployment Claims. Estimate 261K

*Key events are in bold

*All release times are GMT

EUR/USD for Wednesday, May 4, 2016

EUR/USD May 4 at 7:20 GMT

Open: 1.1502 Low: 1.1476 High: 1.1509 Close: 1.1500

EUR/USD Technical

• EUR/USD has shown limited movement in the Asian and European sessions
• 1.1495 was tested earlier in support and could break during the day
• There is resistance at 1.1609

Further levels in both directions:

• Below: 1.1495, 1.1378, 1.1278 and 1.1172
• Above: 1.1609, 1.1711 and 1.1800
• Current range: 1.1495 to 1.1609

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged on Wednesday, consistent with the lack of movement from EUR/USD. Short positions command a strong majority (67%). This is indicative of strong trader bias towards EUR/USD moving to lower 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.