EUR/USD – Euro Moves Up as Eurozone PMIs Point Higher

EUR/USD has moved higher as we begin the new week, and the pair is trading in the mid-1.30 range in Monday’s European session. The week has started off with a string of releases out of the Eurozone. Spanish, Italian and Eurozone PMIs all showed improvement. On the employment front, the Italian Monthly Employment Rate hit a new record high, but the Eurozone Unemployment Rate dropped. In the US, today’s highlight is ISM Manufacturing PMI. The markets are expecting the index to climb above the 50-point level, which indicates expansion.

The markets have become accustomed to seeing mixed numbers out of the US, but last week’s releases were mostly positive, helping to bolster the US dollar. Manufacturing, consumer confidence and housing numbers all beat their estimates. Unemployment Claims bounced back after a poor release the week before, and almost matched the estimate. Although GDP fell short of the estimate, the dollar remained strong, as the indicator pointed to respectable growth by the US economy. These solid numbers are particularly encouraging as they come from a wide range of economic sectors. Further strong numbers out of the US could be an indication that the recovery is gaining steam.

There have been some conflicting signals lately out of the US Federal Reserve concerning quantitative easing. The US dollar surged after Federal Reserve Chair Bernard Bernanke said that the Fed was planning to scale down QE. However, US (and global) stock markets fell sharply on the news, and the Fed found itself trying to contain the damage and calm the nervous markets. Dallas Fed President Richard Fisher declared that “tapering” should not be confused with “tightening” and said that the Fed was not exiting from its accommodative policy action just yet. Minneapolis Fed President Naraya Kocherlakota reiterated that the Fed was continuing with an expansionary monetary policy event if QE was terminated, and said that it was a misperception to assume that the Federal Reserve had turned more hawkish. One can be excused for dismissing these statements as little more than linguistic acrobatics, and it is questionable if the markets will be reassured by these statements from the Fed, which are clearly aimed at damage control and reassuring nervous investors. Talk of tapering QE has been a positive factor for the US dollar, which remains strong against the major currencies.

Global growth has been sputtering for some time, and there was more bad news, as an HSBC report downgraded its forecast for global growth. In its report, HSBC said that it had lowered its forecast due to the US Federal Reserve decision to cut QE, as well as a sharp slowdown in China and other emerging  countries such as India and Brazil. The report revised China’s GDP from 8.2% to 7.4% for 2013 and from 8.4% to 7.4% for next year. Weaker global growth will likely have a strong impact on countries which heavily depend on exports, such as Japan, Canada and Australia, and this could have a strong negative impact on these countries’ currencies.

EUR/USD for Monday, July 1, 2013

EUR/USD 1.3054 H: 1.3057 L: 1.3008

EUR/USD Technical

EUR/USD has posted gains in the Monday session. The pair is testing support at 1.3050. Next, there is support at the significant level of 1.3000. On the upside, 1.3100 is providing weak resistance. This is followed by a stronger resistance line at 1.3161.

• Current range: 1.3050 to 1.3100

Further levels in both directions:

• Below: 1.3050, 1.3000, 1.2943, 1.2844 and 1.2696
• Above: 1.3100, 1.3162, 1.3271, 1.3353 and 1.3477

OANDA’s Open Positions Ratio

The EUR/USD ratio is showing some movement towards long positions on Monday. This is consistent with what we are seeing from the pair, as the euro has posted gains against the dollar. A majority of positions in the ratio are short, indicating a strong bias towards the pair reversing direction and moving downwards.

The euro has started off the week with some gains, thanks to solid PMI releases and a drop in the Eurozone Unemployment Rate. We could see more movement from EUR/USD during the day, as the US posts ISM Manufacturing PMI, a key release.

EUR/USD Fundamentals

• 7:15 Spanish Manufacturing PMI. Estimate 48.9 points. Actual 50.0 points.
• 7:45 Italian Manufacturing PMI. Estimate 47.8 points. Actual 49.1 points.
• 8:00 Eurozone Final Manufacturing PMI. Estimate 48.7 points. Actual 48.8 points.
• 8:00 Italian Monthly Unemployment Rate. Estimate 12.1%. Actual 12.2%.
• 9:00 Eurozone CPI Flash Estimate. Estimate 1.6%. Actual 1.6%.
• 9:00 Eurozone Unemployment Rate. Estimate 12.3%. Actual 12.1%.
• 13:00 US Final Manufacturing PMI. Estimate 52.4 points.
• 14:00 US ISM Manufacturing PMI. Estimate 50.6 points.
• 14:00 US ISM Manufacturing Prices. Estimate 50.5 points.
• 14:00 US Construction Spending. Estimate 0.6%.

*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.