EUR/USD – Euro Steady At 1.38 Despite Weak PMIs

EUR/USD is trading at the 1.38 level in the European session on Thursday. The pair has shrugged off a host of disappointing European PMIs, as the French, German and Eurozone releases all missed their estimates. The Spanish Unemployment Rate dropped slightly, to an even 26.0%. In the US, there are three key releases – Unemployment Claims, Trade Balance and New Home Sales.

Euro PMIs were weak across the board on Thursday. PMI numbers out of Germany, France and the Eurozone all fell short of their estimates, and most posted a drop compared to the previous release. However, all except French Flash Manufacturing PMI remained above the 50 level, pointing to slight expansion. The latter has been below the 50 level since January 2012, indicating ongoing contraction in the French manufacturing sector. The euro managed to shrug weak PMIs, and has edged lower against the dollar.

There was plenty of anticipation leading up to the release of US Non-Farm Payrolls on Tuesday, as the key indicator had been postponed from early October due to the government shutdown. However, the markets were in for a big disappointment, as NFP slipped to 148 thousand in September, compared to 169 thousand in August. This was a six-month low, and well off the estimate of 182 thousand. The US unemployment rate dipped to 7.2%, a five-year low, but this does not point to increased employment, as the participation rate remained at 63.8%, its lowest level since 1978. These figures indicate that the US labor market continues to have difficulty creating new jobs. The US dollar was broadly lower following the weak NFP reading, and the euro gained about one cent against the dollar.

There was some optimism and relief last week, as the Republicans and Democrats finally reached an agreement last week to reopen the government and raise the debt ceiling, following weeks of fighting in Congress. However, the deal provides short-term relief only – the government will be funded until January 15, while the debt limit will be raised until February 7. Both sides have agreed to discuss budget issues and try to reach a long-term agreement before December 13. So we could be right back where we started in just a few months. At the same time, the public is angry at lawmakers for creating the crisis, and with congressional elections only a year away, the politicians on Capitol Hill may think twice before plunging the country into another fiscal and political crisis.

The US government is again functioning and a default has been averted, but the agreement hammered out in Congress last week provides short-term relief only, as it raises the debt ceiling until early February and funds the government until mid-January. The underlying budgetary issues remain unresolved, consumer confidence has been shaken and employment numbers are not looking good. Given this situation, the Fed is unlikely to push the taper trigger until early 2014, perhaps not before March or April.

EUR/USD for Thursday, October 24, 2013

EUR/USD October 24 at 12:30 GMT

EUR/USD 1.3802 H: 1.3822 L: 1.3764

EUR/USD Technical

• EUR/USD is steady in Thursday trading, as the pair trades close to the 1.38 line.
• On the downside, 1.3786 has reverted to a support role. This weak line could be tested if the dollar shows any upward movement. This is followed by strong support at 1.3649.
• EUR/USD faces resistance at 1.3893. This is followed by resistance at the key 1.40 line, which has held firm since October 2011.
• Current range: 1.3786 to 1.3893

Further levels in both directions:

• Below: 1.3786, 1.3649, 1.3585, 1.3500 and 1.3410
• Above: 1.3893, 1.4000, 1.4143 and 1.4247

OANDA’s Open Positions Ratio

EUR/USD ratio is showing movement towards long positions on Thursday. This is consistent with the movement of the pair, as the euro has posted modest gains against the dollar. The ratio continues to be dominated by short positions, indicating a strong trader bias towards the US dollar moving higher against the euro.

EUR/USD is trading close the 1.38 line. With three key releases out of the US later on Thursday, we could see some volatility from the pair in the North American session.

EUR/USD Fundamentals

• 7:00 French Flash Manufacturing PMI. Estimate 50.3 points. Actual 49.4 points.
• 7:00 French Flash Services PMI. Estimate 51.2 points. Actual 50.2 points.
• 7:00 Spanish Unemployment Rate. Exp. 26.1 %. Actual 26.0%.
• 7:30 German Flash Manufacturing PMI. Estimate 51.6 points. Actual 51.5 points.
• 7:30 German Flash Services PMI. Estimate 53.8 points. Actual 52.3 points.
• 8:00 Eurozone Flash Manufacturing PMI. Estimate 51.4 points. Actual 51.3 points.
• 8:00 Eurozone Flash Services PMI. Estimate 52.3 points. Actual 50.9 points.
• Day 1 – EU Economic Summit.
• 12:30 US Trade Balance. Estimate -39.4B.
• 12:30 US Unemployment Claims. Estimate 343K.
• 13:00 US Flash Manufacturing PMI. Estimate 52.8 points.
• 14:00 US New Home Sales. Estimate 427K.
• 14:00 US JOLTS Job Openings. Estimate 3.77M.
• 14:30 US Natural Gas Storage. Estimate 80B.

*Key releases are highlighted in bold

*All release times are GMT

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