EUR/USD – Euro Stable as PMI Releases Mixed, Merkel Wins Big

EUR/USD is steady as we start the new trading week. In the Monday European session, the pair continues to trade in the low-1.35 range. On Sunday, Germans voted in national elections and Chancellor Angela Merkel was easily elected to a third consecutive term. However, the makeup of the new coalition is yet to be determined. In economic news, Euro PMIs were released on Monday and the readings were mixed. It’s a quiet start to the week in the US, with just one economic release on Monday – Flash Manufacturing PMI.

It was a busy weekend, as Germans went to the polls on Sunday. There was little surprise as Chancellor Angela Merkel was re-elected to a third straight term. Unofficial results gave Merkel’s CDU and CSU bloc 41.5% of the vote, but the bloc is a few seats short of a super majority. This means that Merkel will have to include one of the opposition parties to form a coalition, which could lead to political uncertainty in the Eurozone’s biggest economy. Merkel’s convincing electoral victory is good news for the euro, as she will likely continue her staunch pro-euro policies. However, Merkel could face complications putting together a government, and the euro could react negatively to the uncertainty. So far, the currency has shown almost no reaction to the German election.

The markets were caught off guard last week, as the US Federal Reserve balked and did not taper QE at its policy meeting on Wednesday. Most analysts had expected the Fed to announce a scaling down of the present bond-buying program of $85 billion/month by as much as $15 billion/month. However, the Fed decided to stay the QE course for now, stating that US economic data was not strong enough to warrant QE tapering at this time. The Fed also downgraded its forecast for the economy, estimating GDP growth for 2013 at 2.0-2.3%, down from 2.3-2.6% in an earlier forecast. It also lowered its outlook for 2014 from 2.9-3.1%, down from 3.0-3.5%. The euro hammered the dollar after the decision, with EUR/USD rising close to two cents.

Overshadowed by the FOMC Statement were some excellent US releases on Thursday. Unemployment Claims came in at 309 thousand, well below the estimate of 331 thousand. Existing Home Sales rose to 5.48 million, crushing the estimate of 5.27 million and posting its best level in over three years. The Philly Fed Manufacturing Index rocketed from 9.3 to 22.3 points, its best showing since May 2011. Perhaps if we’d seen this kinds of numbers a week or two ago, the Fed might have introduced QE tapering. In any event, the strong numbers failed to bolster the US dollar, which was broadly down after the non-taper announcement from the Fed.

Eurozone, German and French PMIs were released on Monday, and the results were a mix. Interestingly, there was a solid consistency among the releases, as all of the Manufacturing PMIs lost ground, while the Services PMIs improved. On a positive note, all of the PMIs posted readings above the 50-point level, with the exception of French Flash Manufacturing PMI. This means that with the exception of the French manufacturing industry, the PMIs continue to point to expansion in the services and manufacturing sectors.

EUR/USD for Monday, September 23, 2013

EUR/USD 1.3513 H: 1.3544 L: 1.3501

EUR/USD Technical

• EUR/USD continues to trade in the low-1.35 range in Monday trading.
• The pair is facing resistance at 1.3585. The next line of resistance is at 1.3649. This line has remained intact since February.
• On the downside, there is support at 1.3410. This is followed by support at the round number of 1.3300.
• Current range: 1.3476 to 1.3585

Further levels in both directions:

• Below: 1.3476, 1.3410, 1.3300, 1.3162 and 1.3100
• Above: 1.3585, 1.3649, 1.3786, 1.3893 and 1.4000

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged in Monday trading, continuing the trend we have seen since last week. This is reflected in the current movement of the pair, which is showing very little activity. The ratio continues to have a solid majority of short positions, indicative of a strong trader bias towards the US dollar posting gains at the expense of the euro.

EUR/USD is trading quietly, showing little reaction to the German elections and European PMI releases. With the US releasing a manufacturing PMI later in the day, we could see an increase in the pair’s movement if the reading is not in line with the market’s expectations.

EUR/USD Fundamentals

• 7:00 French Flash Manufacturing PMI. Estimate 50.2 points. Actual 49.5 points.
• 7:00 French Flash Services PMI. Estimate 49.3 points. Actual 50.7 points.
• 7:30 German Flash Manufacturing PMI. Estimate 52.3 points. Actual 51.3 points.
• 7:30 German Flash Services PMI. Estimate 53.2 points. Actual 54.4 points.
• 8:00 Eurozone Flash Manufacturing PMI. Estimate 51.8 points. Actual 51.1 points.
• 8:00 Eurozone Flash Services PMI. Estimate 51.1 points. Actual 52.1 points.
• 10:00 German Buba Monthly Report.
• 13:00 ECB President Mario Draghi Speaks. Draghi will address the ECB Committee on Economic and Monetary Affairs in Brussels.
• 13:00 US Flash Manufacturing PMI. Estimate 54.2 points.
• 13:30 US FOMC Member William Dudley Speaks.

*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.