EUR/USD – Below 1.34 As Non-Farm Payrolls Sparkles

EUR/USD has posted some gains as we start the new trading week. The euro dropped over 100 points following the surprise ECB rate cut on Thursday, and the pair is trading below the 1.34 line in Monday’s European session. On Friday, US Non-Farm Payrolls surged, pushing the pair higher. However, US Preliminary U0M Consumer Sentiment was a disappointment, slipping to an eight-month low. Monday has a very light schedule, with just two events out of the Eurozone. The US markets are closed for a holiday, so we can expect thin trading during the day.

The markets had very low expectations from Non-Farm Payrolls, one of the most important economic indicators. The estimate for the October release stood at just 121 thousand, as there was concern that the reading would be artificially low due to the government shutdown in October. However, the indicator put those concerns to rest, as the indicator soared to 204 thousand, its highest level in eight months. The outstanding NFP figure bolstered the US dollar against the major currencies, and has increased speculation that the Fed might press the tapering trigger in December. Such talk could bolster the US currency, as a reduction in QE is bullish for the dollar. At the same time, speculation about a scaling down in QE introduces uncertainty into the markets, which could lead to some volatility from EUR/USD.

The ECB surprised the markets on Thursday when it reduced its benchmark interest rates by 0.25%, to a record low rate of 0.25%. The marginal rate was cut to 0.75% from 1.0%, while the deposit rate was left at unchanged at 0.0%. Following the decision, ECB head Mario Draghi stated that inflation in the Eurozone remains very low and that this would likely continue in the coming months. He added that further monetary easing remained an option until economic conditions improved. The markets had expected the ECB to hold rates at 0.50%, but a combination of weak growth and inflation well below the ECB’s target of 2% led to the ECB cutting rates for the first time since April.

The French economy continues to disappoint, as Industrial Production declined 0.5%, well off the estimate of a 0.4% gain. This marked the fourth decline for the manufacturing indicator in five releases. The trade surplus widened to -5.8 billion euros in October, a four-month high. This was well off the forecast of -4.7 billion. Adding oil to the fire, the Standard and Poor’s credit rating agency downgraded France’s sovereign rating one notch, from AA+ to AA. In October, S&P stated that although France had emerged from the recession, long-term growth prospects were “mired in risks and uncertainties”. However, the outlook has improved from negative to stable, meaning that another downgrade is unlikely in the next two years.

Germany is the Eurozone’s largest economy, so the Eurozone and the euro are sensitive to German releases. Last week’s data was a mixed bag, making it difficult to predict in which direction the German economy is headed. Factory Orders jumped 3.3% in October, bouncing back from a decline of 0.3% in September. This was well above the estimate of 0.6%. However, Industrial Production failed to keep pace, posting a decline of 0.9%, compared to a strong 1.4% the month before. The estimate stood at 0.2%. The week ended on a strong note, as Trade Balance widened to 18.8 billion, up from 15.6 billion the month before. It was the highest reading since December 2007.

EUR/USD for Monday, November 11, 2013

EUR/USD November 11 at 9:50 GMT

EUR/USD 1.3399 H: 1.3405 L: 1.3347

EUR/USD Technical

• EUR/USD has edged higher on Monday, trading close to the 1.34 line.
• EUR/USD is receiving support at 1.3325. This is followed by a support level at 1.3265, which has remained intact since mid-September.
• The pair is facing resistance at 1.3410. This is a weak line which could be tested during the day. This is followed by a strong resistance line at 1.3500.
• Current range: 1.3325 to 1.3410

Further levels in both directions:

• Below: 1.3325, 1.3265, 1.3149 and 1.3049
• Above: 1.3410, 1.3500, 1.3585, 1.3649 and 1.3786

OANDA’s Open Positions Ratio

EUR/USD ratio is pointing to gains in long positions in Monday trading. This is reflected in the pair’s movement, as the euro has posted modest gains. A large majority of the open positions remain short, indicative of a trader bias towards the dollar posting gains against the euro.

After taking a tumble last week, the euro is steady. trading close to the 1.34 line. We can expect a quiet day for EUR/USD, with no major Eurozone releases and the US markets closed for a holiday.

EUR/USD Fundamentals

• 9:00 Italian Industrial Production. Estimate 0.2%. Actual 0.2%.
• 17:00 German Buba President Jens Weidmann Speaks.

*Key releases are highlighted in bold

*All release times are GMT

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