EUR/USD – Draghi’s Dovish Comments Sends Euro Sliding

EUR/USD posted sharp losses on Thursday, as the pair lost close to one cent. The euro has steadied on Friday, as the pair trades just above the 1.32 line in European trade. The euro lost ground after ECB president Mario Draghi said that ECB interest rates would likely remain low for some time. Over in the US, Unemployment Claims and ISM Manufacturing PMI looked very sharp. In Friday’s news, Spanish Unemployment Change posted another strong decrease, but missed the estimate. The markets will get another good look at the employment picture in the US, with the release later today of Non-Farm Employment Change and the Unemployment Rate. As well, FOMC member James Bullard addresses a finance conference in Boston.

At a policy meeting on Thursday, the ECB maintained interest rates at the record low level of 0.50%. This was not anything unexpected, but it was remarks by Mario Draghi at the follow-up press conference which shook up the markets and sent the euro tumbling. Draghi was quite clear about the ECB’s future monetary policy, saying that the ECB will maintain an accommodative policy “for an extended period of time.” This means that rates will remain very low or could drop even further. Draghi also noted that Euro-zone growth remains weak. The markets reacted in predictable fashion to Draghi’s comments, as the euro took a dive downwards.

The Federal Reserve released a policy statement earlier this week, but there were no dramatic announcements from the US central bank. As expected, the Fed said it would maintain the present levels of QE, which involves $85 billion in asset purchases each month, and gave no indication about when it might scale down QE. There has been talk that the Fed could taper QE as early as September, and the speculation and uncertainty will likely cause volatility in the markets as long as the Fed doesn’t show its cards and keeps the markets in the dark. The Fed gave the US economy a cautious thumbs-up, noting that the economy was growing at a “modest” pace. However, it did voice concern about a possible rise in inflation.

The employment situation in the Eurozone has looked dismal for some time, with unemployment rising across the continent. This week there was some relief with some positive numbers. On Friday, Spanish Employment Change posted a decrease of -64.9 thousand. This was a very good result, although the markets were expecting an even stronger number, with an estimate of -80.0K. Elsewhere, the unemployment rate in the Eurozone remained at 12.1%, which was a notch better than the estimate of 12.2%. In Italy, the unemployment rate edged lower, from 12.2% to 12.1%. These numbers won’t make headlines, but may point to a stabilizing of the employment picture in the Eurozone. At the same time, while these figures are welcome news, employment numbers will have to show dramatic improvement if the Eurozone is to get back on the road to recovery.

The markets are getting a good look at German economic numbers this week. The releases have been mostly positive, pointing to some improvement in the Eurozone’s largest economy. Earlier in the week, GfK Consumer Climate rose to 7.0 points, its highest level in six years. On the inflation front, Preliminary CPI posted a solid gain of 0.5%. Unemployment Change looked sharp, dropping by 7 thousand, much lower than the estimate of -1 thousand. The spoiler was German Retail Sales, which declined by 1.5%, its worst showing since January. With general elections in Germany scheduled for September, every economic release has added significance and will be under the microscope during the election campaign.

EUR/USD for Friday, August 2, 2013

EUR/USD 1.3205 H: 1.3227 L: 1.3190

EUR/USD Technical

EUR/USD is struggling to stay above the 1.32 line in Friday trading, as the proximate support and resistance lines remain in place (S1 and R1 above). The pair briefly dipped below the 1.32 line in the Asian session, but recovered. EUR/USD continues to face resistance at 1.3275. This line has strengthened as the pair has lost ground and trades close to the 1.32 line. The round number of 1.34 is the next resistance line.

On the downside, the pair continues to receive support at 1.3162. Given the sharp losses sustained by the euro on Thursday, this line cannot be considered safe. This is followed by stronger support at 1.31.

• Current range: 1.3162 to 1.3275

Further levels in both directions:

• Below: 1.3162, 1.3100, 1.3050, 1.3000 and 1.2943
• Above: 1.3275, 1.34, 1.3476, 1.3585 and 1.3649

OANDA’s Open Positions Ratio

EUR/USD ratio has gone quiet and is unchanged in Friday trading. This is reflected in what we are seeing from the pair, as EUR/USD is showing very little movement in the European session. Short positions continue to comprise a very substantial majority of the open positions, indicating a strong trader bias towards the US dollar continuing to post gains against the euro.

EUR/USD remains under pressure after strong losses, and is testing the 1.32 line. Will the US continue to register more gains? We could see some volatility from the pair later in the day, as the US releases key employment numbers.

EUR/USD Fundamentals

• 7:00 Spanish Unemployment Change. Estimate -80.0K. Actual -64.9K.
• 9:00 Eurozone PPI. Estimate 0.1%. Actual 0.0%.
• 12:30 US Non-Farm Employment Change. Estimate 184K.
• 12:30 US Unemployment Rate. Estimate 7.5%.
• 12:30 US Average Hourly Earnings. Estimate 0.2%.
• 12:30 US Core PCE Price Index. Estimate. 0.1%.
• 12:30 US Personal Income. Estimate 0.5%
• 12:30 US Personal Spending. Estimate 0.5%.
• 14:00 US Factory Orders. Estimate 2.3%.
• 16:15 US FOMC Member James Bullard Speaks.

*Key releases are highlighted in bold

*All release times are GMT

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