EUR/USD is subdued on Monday, following very sharp gains in the Friday session. The pair is trading at 1.1357. On the release front, it’s a quiet start to the week. German Factory Services declined 2.0%, well below expectations. Eurozone Retail PMI improved to 50.6 points, and Eurozone Sentix Investor Confidence jumped to 9.9 points, well above the forecast. In the US, there are no major releases on the schedule. Fed chair Janet Yellen will address a conference in Philadelphia.
The currency markets wrapped up last week with strong volatility, courtesy of a dismal Nonfarm Payrolls report. The April release plunged to 38 thousand, stunning the markets. Analysts could be forgiven for rubbing their eyes in disbelief at this figure, which was the lowest reading since August 2010. The estimate stood at 159 thousand, which was almost identical to the previous release. The US dollar took a beating on Friday, and the euro took full advantage, gaining over 200 points, climbing to 3-week highs. This release could have significant ramifications, and could mean that a June rate hike by the Federal Reserve is no longer on the table. Some of the plunge in the NFP release is attributable to a strike by workers at Verizon, a major communications company. Still, even without this component, the indicator would have posted a gain of only 72,000, well short of expectations. In other US employment news, Average Hourly Earnings, which measures wage growth, posted a weak gain of 0.2%. The unemployment rate fell to 4.7%, but workforce participation dropped to 62.6%.
As expected, the ECB opted to remain on the sidelines at its policy meeting on Thursday. The ECB maintained its monetary policy, as the main lending rates remained at 0.00%, the deposit rate at -0.40%, and the asset-purchase program (QE) at 80 billion euros/month. Speaking after the ECB announcement, Mario Draghi reiterated that inflation was likely to remain very low or in negative territory for some time. He stated that the ECB had revised its inflation forecast for 2016 to 0.2% from 0.1%. Draghi acknowledged that “risks to the euro-area growth outlook remain tilted to the downside”, but tried to put a positive spin on the bloc’s economy. However, the markets are likely to remain skeptical about Draghi’s optimistic spin. Eurozone inflation remains far, far away from the target of 2.0%, and given current economic conditions, the inflation picture is unlikely to improve anytime soon. Draghi is clearly reluctant to lower interest rates into negative territory, so he may opt to extend the QE program beyond March 2017. Commerzbank chief economist Jorg Kramer has called Draghi’s monetary stance “forced optimism” and says that the ECB will have no choice but to adopt further stimulus measures.
Monday (June 6)
- 6:00 German Factory Orders. Estimate -0.4%. Actual -2.0%
- 8:10 Eurozone Retail PMI. Actual 50.6
- 8:30 Eurozone Sentix Investor Confidence. Estimate 7.1. Actual 9.9
- 14:00 US Labor Market Conditions Index
- 16:30 US Fed Chair Janet Yellen Speaks
*Key events are in bold
*All release times are GMT
EUR/USD for Monday, June 6, 2016
EUR/USD June 6 at 9:00 GMT
Open: 1.1350 Low: 1.1134 High: 1.1363 Close: 1.1355
- EUR/US has shown little movement in the Asian and European sessions
- 1.1278 is providing support
- 1.1376 is a weak resistance line and could be tested in the Monday session
Further levels in both directions:
- Below: 1.1278, 1.1054 and 1.0909
- Above: 1.1376, 1.1495 and 1.1638
- Current range: 1.1376 to 1.1495
OANDA’s Open Positions Ratio
EUR/USD ratio has posted strong movement towards short positions. This is consistent with the sharp gains shown by EUR/USD on Friday. Short positions have a majority (58%), indicative of trader bias towards EUR/USD resuming its upward movement.
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