EUR/USD – Slides as US Employment Numbers Shine

EUR/USD continued to show volatility, as the pair dropped sharply on Thursday. The euro lost more than one cent, and was trading in the low-1.30 range on Friday. It’s been a very subdued week as far as fundamental releases, with only one major event – US Unemployment Claims, which was released on Thursday. This employment indicator continues to churn out solid numbers, and came in well below expectations. On Friday, German Trade Balance was below the estimate. In the US, today’s only economic release is the Federal Budget Balance.

The euro has taken the markets on a roller coaster ride over the past two days. On Wednesday, EUR/USD jumped close to one cent, thanks to strong German manufacturing numbers. However, the euro reversed direction and posted sharp losses the very next day, following strong US Unemployment Claims. With the ECB rate cut behind us, the markets will be expecting better numbers out of the Eurozone. If Eurozone numbers fail to impress, we could see the euro take a fall.

There was only one major release out of Europe and the US this week, and the dollar took advantage of a positive US Unemployment Claims release. There were 323 thousand new claims, well below the estimate of 333 thousand. This was the third week in a row that Unemployment Claims has come in below expectations. This points to an improving employment picture in the US, but the markets will want to see strong numbers from other sectors of the economy to be convinced that the US is headed in the right direction.

ECB head Mario Draghi continues to be in the spotlight following the ECB’s dramatic rate cut. Earlier this week, Draghi said that last week’s cut was taken due to the continuing slowdown in the Eurozone, and urged Eurozone countries to take the necessary steps to get their fiscal houses in order. Draghi repeated that the ECB was open to further rate cuts, as well as lowering its deposit rates below zero. When he mentioned the latter point last week, the euro took a dive, but this time, the markets did not react. However, not all policymakers favor further rate reductions. Yves Mersch, an ECB board member, stated that interest rate cuts have limits to their effectiveness, and that the ECB had other tools to help revive the Eurozone.

Remember all the talk about Greece being on the ropes and possibly leaving the Eurozone? Well, according to the IMF, things have improved. The organization released a report this week which praised Greece for its efforts to reduce crippling deficits, commending the country for “exceptional progress” in the past four years. The IMF also noted approvingly that Greece had increased competitiveness and kept the financial sector stable. At the same time, the report found that the country has failed to tackle tax evasion or cut the inefficient public sector, and these factors had contributed to a deep recession. With an economy that has shrunk by 20% and an unemployment rate at a staggering 27%, Greece is by no means out of the woods, and may still need a helping hand from the IMF or ECB in the near future.

EUR/USD for Friday, May 10, 2013

EUR/USD 1.3014 H: 1.3051 L: 1.2991

EUR/USD Technical

EUR/USD continues to lose ground, and dipped below the 1.30 line in the European session. We could see this support line face more pressure during the day. There is a stronger support level is at 1.2960. On the upside, 1.3050 is providing weak resistance. This is followed by a resistance line at the round number of 1.31.

• Current range: 1.3000 to 1.3050

Further levels in both directions:

• Below: 1.3000, 1.2960, 1.2880 and 1.2790
• Above: 1.3050, 1.31, 1.3170, 1.3240 and 1.3306

OANDA’s Open Positions Ratio

EUR/USD ratio has reversed direction, and is showing strong movement in the direction of long positions. We are not seeing this reflected in the current movement of the pair, as the euro continues to move lower against the dollar. The ratio is now evenly split between short and long open positions, indicating a split among traders with regard as what to expect from the pair. 

EUR/USD has been volatile over the past two days, and finds itself struggling to stay above the 1.30 line. With no major releases on the schedule today, we could see the pair to trade quietly during the day.

EUR/USD Fundamentals

• 6:00 German Trade Balance. Estimate 18.0B. Actual 17.6B.
• 8:00 Italian Industrial Production. Estimate -0.2%. Actual -0.8%.
• Day 1: G7 Meetings.
• 12:25 US FOMC Member Charles Evans Speaks.
• 13:30 US Fed Chairman Bernanke Speaks.
• 18:00 US FOMC Member Esther George Speaks.
• 18:00 US Federal Budget Balance. Estimate 108.3B.

*Key releases are highlighted in bold

*All release times are GMT

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.