EUR/USD – All Eyes On ECB Announcement

EUR/USD  continues to stay close to the 1.31 level, which has seen a fair bit of activity this week. The pair was trading in the low-1.31 range in Thursday’s European session. The markets are keeping a close watch on the ECB, which will set its key interest rate later today. On Wednesday, US employment numbers were dismal, as ADP Non-Farm Employment was well below expectations. The news was more positive from the ISM Non-Manufacturing PMI, which beat the forecast. Taking a look at today’s releases, German Factory Orders slipped badly, falling to a seven-month low. In the US, today’s highlight is Unemployment Claims. The markets are hoping for a turnaround from the key indicator after a weak release last week. 

The ECB will be the center of attention on Thursday, as the central bank releases the benchmark interest rate. No change is expected to the current level of 0.50%. Where things could get interesting is the press conference hosted by ECB head Mario Draghi. If Draghi hints at negative interest rates, we could see the euro lose ground. The ECB’s deposit rate currently stands at zero, and if the ECB decides to go lower, it would be the first central bank to introduce negative interest rates. Negative rates would be bad for the euro, as investors would likely look outside the Eurozone to get more attractive rates for their funds, rather than paying the ECB to hold their deposits.

Which way is the US economy headed? The US continues to post some weak numbers, and on Wednesday it was the turn of ADP Non-Farm Payrolls. The key indicator has struggled, and has now missed the estimate for three consecutive releases. The indicator came in at 135 thousand, well off the forecast of 171 thousand. We’ll see more key employment numbers this week, with the release of Unemployment Claims later today, followed by the Unemployment Rate and Non-Farm Payrolls on Friday. Traders can expect some volatility from EUR/USD if these readings catch the markets by surprise.

Will the Federal Reserve scale back QE? Although the Fed hasn’t made any changes so far, Fed policymakers, including Fed Chair Bernanke, continue to hint that QE could be scaled back in the next few months. With the US continuing to alternate between good and bad economic releases, the Fed may continue to hold off on any changes to QE before it is convinced that the US economy is improving. The Fed has repeatedly stated that it wants to see an improvement in the labor picture before taking any action, so this week’s employment releases could play a major role in what action the Fed takes, if any. 

EUR/USD for Thursday, June 6, 2013

EUR/USD 1.3113 H: 1.3131 L: 1.3075

EUR/USD Technical

EUR/USD pushed above the 1.31 line in the Asian session, and remains steady. On the downside, 1.3100 is providing support. This is a weak line, and could continue to see movement during the day. There is stronger support at 1.3050. On the upside, 1.3162 is providing resistance. This line could face pressure if the euro pushes higher. This is followed by resistance at 1.3271.

• Current range: 1.3100 to 1.3162

Further levels in both directions:

• Below: 1.3100, 1.3050, 1.3000, 1.2955 and 1.2843
• Above: 1.3162, 1.3271, 1.3353 and 1.3477

OANDA’s Open Positions Ratio

EUR/USD ratio continues the movement we have seen throughout the week, in the direction of short positions. We are not seeing this reflected in the pair at present, as the euro has moved up slightly against the dollar. This prolonged movement in the ratio could signal that we will see the pair move in a downward direction, back below the 1.31 line. The ratio continues to have a strong majority of open short positions.

The euro is steady, but that could change in a hurry after today’s ECB rate announcement. As well, the US releases Unemployment Claims, which could affect the movement of EUR/USD.

EUR/USD Fundamentals

• 8:43 Spanish 10-year Bond Auction. Actual 4.52%.
• 8:59 French 10-year Bond Auction. Actual 2.04%.
• 10:00 German Factory Orders. Exp. -0.1%. Actual -2.3%.
• 11:30 US Challenger Job Cuts.
• 11:45 ECB Minimum Bid Rate. Exp. 0.50%.
• 12:30 ECB Press Conference. 
• 12:30 US Unemployment Claims. Exp. 345K.
• 14:30 US Natural Gas Storage. Exp. 101B.

*Key releases are highlighted in bold

*All release times are GMT

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