EUR/USD – Little Movement as Budget Stalemate Continues

EUR/USD is showing little movement in Wednesday trading. In the European session, the pair is trading in the low-1.35 range. The US government shutdown is now its second day, as Republicans and Democrats continue to spar over how to end the budget crisis. In economic news, Spanish Unemployment Change hit a seven-month high. The ECB will announce the new interest rate followed by a press conference with Mario Draghi. Over in the US, the ISM Manufacturing PMI looked solid on Tuesday, beating the estimate. Wednesday’s key event is the ADP Non-Farm Employment Change. The markets are expecting very little change from the September release. Later today Federal Reserve Chair Bernard Bernanke will speak in St. Louis.

The US shutdown continues, as Congress remains in a partisan deadlock over how to come to some agreement over the federal budget. With the government lacking funds to operate, it has been forced to close non-essential services and send almost a million government workers home. The Republicans and Democrats are entrenched in their positions, but public resentment may force the politicians to get their act together quickly. If things are resolved sometime this week, it will have been more of a nuisance than a crisis. However, a much more serious crisis could occur in two weeks if Congress doesn’t reach an agreement on raising the debt ceiling. If that happens, the Treasury would be unable to pay all of its bills, and the economic fallout could be tremendous.

This week’s Eurozone employment data is not encouraging. Spanish Unemployment Change looked weak in September, jumping to 25.6 thousand, compared to 0.0 thousand the month before. This was well above the estimate of 12.3 thousand. This follows a dismal German Unemployment Change which shot up to its highest level in over four years, rising from 7 thousand to 25 thousand. This surprised the markets, which had anticipated a decline of -7 thousand. There was some good news on the employment front, as the Eurozone Unemployment Rate dropped from 12.1% to 12.0% in September, a five-month low. Even though the Eurozone appears to have exited the recession, high unemployment continues to weigh on the recovery and job creation remains weak.

There is political drama across the Atlantic as well, as the government collapsed over the weekend, as ex-PM Silvio Berlusconi pulled his ministers out of the coalition government led by Enrico Letta. Berlusconi urged Letta to dissolve parliament and call new elections, but Letta has opted to seek a vote of confidence on Wednesday, hoping to keep his battered coalition together. Italian politics are often full of surprises and twists, and we could be in for quite a show this week.

EUR/USD for Wednesday, October 2, 2013

EUR/USD 1.3530 H: 1.3539 L: 1.3507

EUR/USD Technical

• EUR/USD is trading quietly in Wednesday trading. The pair touched a low of 1.3507 is the Asian session before edging higher.
• The pair continues to face resistance at 1.3585. This is followed by resistance at 1.3649. This line has not been tested since early February.
• The pair is receiving weak support at the round number of 1.3500. This is followed by stronger support at 1.3410.
• Current range: 1.3500 to 1.3585

Further levels in both directions:

• Below: 1.3500, 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 pointing to movement towards long positions in Wednesday trading. This is reflected in the current movement of the pair, as the euro has posted very modest gains against the dollar. The ratio continues to have a solid majority of short positions, indicative of a strong trader bias towards the US dollar reversing direction and climbing to higher ground.

EUR/USD continues to trade quietly above the 1.35 line. We could be in for some volatility during the day, as the US shutdown continues and both Mario Draghi and Bernanke speak later today. As well, the US releases ADP Non-Farm Payrolls, a key event.

EUR/USD Fundamentals

• 7:00 Spanish Unemployment Change. Estimate 12.3K. Actual 25.6K.
• Tentative – German 10-year Bond Auction.
• 11:45 ECB Minimum Bid Rate. Estimate 0.50%.
• 12:15 US ADP Non-Farm Employment Change. Estimate 177K.
• 12:30 ECB Press Conference.
• 14:30 US Crude Oil Inventories. Estimate 2.4M.
• 16:00 US FOMC Member Eric Rosengren Speaks. Rosengren is dovish in stance.
• 19:30 US Federal Reserve Chairman Bernard Bernanke Speaks.

*Key releases are highlighted in bold

*All release times are GMT

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