EUR/USD – Steady as Euro PMIs Point Upwards

EUR/USD is steady on Wednesday, as PMI releases out of Europe were solid. In the European session, the pair is trading in the mid-1.32 range. In economic news, Services and Manufacturing PMIs from Germany, France and the Eurozone all beat their estimates. The one disappointing Eurozone release was Italian Retail Sales, which fell short of expectations. In the US, today’s major release is Existing Home Sales. The markets will be hoping that this market-mover makes amends for New Home Sales, which was a disappointment earlier in the week.

The markets couldn’t have asked for better news on Tuesday, as Services and Manufacturing PMIs out of France, Germany and the Eurozone all improved and beat their estimates. The news was especially good out of Germany, as Services PMI climbed above the 50 level for the first time since February, while Manufacturing PMI improved to 52.5 points. The 50-point level separates between contraction and expansion. The improving PMIs point to increasing confidence on the part of purchasing managers with regard to the manufacturing and services sectors. Further strong releases from these industries could be a sign that the Eurozone is finally on the road to economic recovery. Somewhat surprisingly, the euro has not taken advantage of Tuesday’s strong numbers, posting very small gains.

When will the Federal Reserve take the plunge and start to scale back QE? Despite the zigzagging we’ve seen on this issue from the Fed, there is a strong likelihood that this will take place before the end of 2013, barring a major downturn by the US economy. There is speculation that the Fed could take action in September. Appearing on Capitol Hill last week, Fed chair Bernard Bernanke was careful not to get pinned down with any specific deadlines, and instead said that stronger growth and lower unemployment were the key factors to any action over QE. The problem with this approach is the markets remain in the dark, and every strong US release fuels expectation about QE tapering, while a weak release does the opposite. This of course, contributes to market instability, as we’ve seen in recent months with the US dollar. The G20 seemed to have this issue in mind when it issued a statement that member countries had agreed that future monetary policy moves would be “carefully calibrated and clearly communicated”. Whether the Fed will suddenly show its cards is doubtful, especially in light of Bernanke’s vague and rather dull performance in front of Congress last week.

EUR/USD for Wednesday, July 24, 2013

EUR/USD 1.3234 H: 1.3254 L: 1.3191

EUR/USD Technical

EUR/USD has edged higher on Wednesday, showing limited movement. The pair dipped below the 1.32 line in the Asian session but bounced back into low-1.32 territory in the European session. The pair continues to receive support at 1.3162. This line has strengthened as the euro has posted modest gains throughout the week. The next support level is at the round number of 1.3100.

On the upside, the pair faces resistance at 1.3275. This line has weakened, and could face pressure if the euro can gain further upward momentum. This is followed by a strong resistance line at 1.3400, which has held firm since mid-June.

• Current range: 1.3162 to 1.3275

Further levels in both directions:

• Below: 1.3162, 1.3100, 1.3050, 1.3000, 1.2943 and 1.2844
• Above: 1.3275, 1.34, 1.3476 and 1.3585

OANDA’s Open Positions Ratio

EUR/USD ratio continues to show no change, a trend we have seen throughout the course of the week. This is reflected in the pair, which has shown very little movement so far in Wednesday trading. A majority of the open positions are short, indicating that trader sentiment is biased towards the dollar posting gains at the expense of the euro.

Eurozone PMI data looked crisp on Wednesday, with improving numbers from Germany, France and the Eurozone. However, the euro has had a muted response and shown little change to the good news. The US will release Existing Home Sales later in the day, and an unexpected reading could shake EUR/USD out of its slumber.

EUR/USD Fundamentals

• 7:00 French Flash Manufacturing PMI. Estimate 48.9 points. Actual 49.8 points.
• 7:00 French Flash Services PMI. Estimate 47.7 points. Actual 48.3 points.
• 7:30 German Flash Manufacturing PMI. Estimate 49.3 points. Actual 50.3 points.
• 7:30 German Flash Services PMI. Estimate 50.9 points. Actual 52.5 points.
• 8:00 Eurozone Flash Manufacturing PMI. Estimate 49.1 points. Actual 50.1. points.
• 8:00 Eurozone Flash Services PMI. Estimate 48.9 points. Actual 49.6 points.
• 8:00 Italian Retail Sales. Estimate 0.4%. Actual 0.1%.
• 13:00 US Flash Manufacturing PMI. Estimate 52.5 points.
• 14:00 US New Home Sales. Estimate 482K.
• 14:30 US Crude Oil Inventories. Estimate -2.5M

*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.