EUR/USD – Euro Firm as German, Eurozone Services PMIs Within Expectations

EUR/USD has edged lower on Friday, as the pair trades at 1.0750. On the release front, it’s an unusually busy Friday. In the Eurozone, German and Eurozone Services PMI reports were very close to forecasts and pointed to expansion in the service sectors. In the US, the focus is on employment numbers, led by Nonfarm Payrolls. The indicator is expected to jump to 170 thousand. At the same time, wage growth is forecast to edge down to 0.3%. As both these events are market-movers, traders should be prepared for volatility from EUR/USD during the North American session.

The Federal Reserve performance on Thursday disappointed the markets, putting pressure on the dollar. However, the greenback managed to hold its own against the euro. As expected, the Fed opted to maintain the benchmark interest rate at 0.50%. The markets were hoping for some hints about monetary policy from the rate statement, but the statement was more dovish than investors would have liked. The statement reiterated that the US economy is in good shape and that inflation continues to move towards the Fed’s target of 2 percent. Analysts expect the Fed to raise rates two or three times in 2017, with the odds of a rate hike by June priced in at 70%. However, the post-election euphoria which sent the markets higher appears to have dissipated, as Trump’s economic policy remains unclear, while his rhetoric remains undiplomatic and harsh. Trump has promised substantial fiscal spending and tax cuts, but hasn’t provided any details. Just a few months ago, a red-hot economy had led to the Fed loudly hinting at gradual rate increases in 2017. However, with the markets showing increasing uneasiness about the new Trump administration, the Fed will likely change gears and adopt a wait-and-see attitude in the coming months, watching what bills Trump is able to get through Congress and how the economy responds.

Which way is the German economy headed? With the biggest economy in the Eurozone, Germany is often viewed as the bellwether of the strength of the Eurozone. This week’s data out of Germany has been a mixed bag. German Manufacturing and Services PMIs have been respectable and continue to point to expansion in these sectors. On the labor front, unemployment claims dropped by 26 thousand, as the unemployment rate dropped to 5.9% in January, its lowest level since reunification in 1990. However, key consumer indicators were unexpectedly soft. Retail Sales, the primary gauge of consumer spending, posted a sharp decline of 0.9%, its fourth decline in five readings. This reading comes on the heels of Preliminary CPI, which declined 0.6%, its first decline in 9 months.

U.S Payrolls Increase +227,000, Wage Growth Weakens

EUR/USD Fundamentals

Friday (February 3)

• 3:15 Spanish Services PMI. Estimate 54.7. Actual 54.2
• 3:45 Italian Services PMI. Estimate 52.6. Actual 52.4
• 3:50 French Final Services PMI. Estimate 53.9. Actual 54.1
• 3:55 German Final Services PMI. Estimate 53.2. Actual 53.4
• 4:00 Eurozone Final Services PMI. Estimate 53.6. Actual 53.7
• 5:00 Italian Preliminary CPI. Estimate 0.2%
• 5:00 Eurozone Retail Sales. Estimate 0.3%
• 8:30 US Average Hourly Earnings. Estimate 0.3%
• 8:30 US Nonfarm Employment Change. Estimate 170K
• 8:30 US Unemployment Rate. Estimate 4.7%
• 9:15 US FOMC Member Charles Evans Speaks
• 9:45 US Final Services PMI. Estimate 55.1
• 10:00 US ISM Nonfarm Manufacturing PMI. Estimate 57.0
• 10:00 US Factory Orders. Estimate 1.5%

*All release times are EST

*Key events are in bold

EUR/USD for Friday, February 3, 2017

EUR/USD February 3 at 4:40 EST

Open: 1.0761 High: 1.0772 Low: 1.0741 Close: 1.0738

EUR/USD Technical

EUR/USD was flat in the Asian session and has ticked lower in European trade

• 1.0708 is providing support
•  1.0873 is the next line of resistance

Further levels in both directions:

• Below: 1.0708, 1.0616, 1.0506 and 1.0414
• Above: 1.0873, 1.0985 and 1.1114
• Current range: 1.0708 to 1.0873

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged in the Friday session. Currently, short positions have a majority (54%), indicative of trader bias towards EUR/USD continuing to move to lower levels.

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.