EUR/USD – Euro Testing 1.33 Line as Italian PMI Jumps

EUR/USD treated the markets to some volatility on Thursday and Friday, but the pair has started off the new trading week quietly. EUR/USD is trading slightly below the 1.33 level in Monday’s European session. On Friday, US Non-Farm-Employment Change did not look sharp, as it fell well below expectations. Monday started on high note as, Italian Services PMI jumped to its best level in over two years. Eurozone and Spanish PMIs were very close to the forecasts. Eurozone Retail Sales did not impress, as the important consumer spending indicator posted a decline. There is only one release out of the US on Monday – ISM Non-Manufacturing PMI.

Eurozone releases looked positive on Monday morning, as Italian Services PMI climbed from 45.8 to 48.7 points, its highest level since June 2011. While the rise is good news, traders should keep in mind that this PMI has been stuck below the 50-point level for over two years, which indicates continuous contraction in the Italian services sector. Elsewhere, Eurozone and Spanish Services PMI both edged above their estimates, but these have been below the 50-level for an extended period. We’ll have to see some readings above 50, which indicate expansion, before we can begin to discuss a recovery in the services sector. Last week, Italian Manufacturing PMI pushed over the 50 level, so we are seeing some improvement from Italian PMIs, which is a positive development.

Late last week, 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.

With excellent numbers from ADP Non-Farm Payrolls and US Unemployment Claims last week, there were high hopes that the all-important Non-Farm Payrolls would keep pace, but this did not occur. Non-Farm Payrolls dropped sharply from 195 thousand to 162 thousand, well of the estimate of 184 thousand. The US Unemployment Rate edged down to 7.4%, its lowest level in over three years. However, this is not as important as it may seem at first glance. The reason? The participation rate in the US employment market actually dropped and is hovering just over 63%. This is a weak figure, and points to trouble in the labor market, even with a lower unemployment rate.

EUR/USD for Monday, August 5, 2013

EUR/USD 1.3288 H: 1.3300 L: 1.3263

EUR/USD Technical

EUR/USD has edged higher in Monday trading and the pair touched the 1.33 line in the European session but was unable to advance. EUR/USD is now facing resistance at the round number of 1.3400. This is followed by resistance at 1.3476.

On the downside, the pair continues to receive support at 1.3275. This is a weak line, and could face strong pressure during the day. The line of 1.3100 is a stronger support level.

• Current range: 1.3275 to 1.3400

Further levels in both directions:

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

OANDA’s Open Positions Ratio

EUR/USD ratio has started the week with movement towards short positions. We are not seeing this in the pair, as EUR/USD has edged higher. If this movement in the ratio continues, it could be a early sign that the US dollar will reverse direction and post gains against the euro.

EUR/USD is putting strong pressure on the 1.33 line. Will it move into 1.33 territory? We could see some further movement, as the US releases a key services event later on Monday.

EUR/USD Fundamentals

• 7:15 Spanish Services PMI. Estimate 48.4 points. Actual 48.5 points.
• 7:45 Italian Services PMI. Estimate 46.6 points. Actual 48.7 points.
• 8:00 Eurozone Final Services PMI. Estimate 49.6 points. Actual 49.8 points.
• 8:30 Eurozone Sentix Investor Confidence. Estimate 9.8 points.
• 9:00 Eurozone Retail Sales. Estimate -0.6%. Actual -0.6%.
• 14:00 US ISM Non-Manufacturing PMI. Estimate 53.2 points.

*Key releases are highlighted in bold

*All release times are GMT

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