EUR/USD has posted slight gains on Friday, as the pair trades at 1.1130 in the European session. The euro plunged some 250 points on Thursday, as ECB head Mario Draghi hinted that the ECB would likely take further easing measures before the end of 2015. In the US, Unemployment Claims beat the estimate for a third straight week. On Friday, German and French PMIs were positive, as all were within expectations. There is only one US release to wind up the week, Manufacturing PMI. Little change is expected in the October report.
The euro can’t be blamed for cringing whenever ECB head Mario Draghi holds a press conference, and Thursday was no exception, as the continental currency dropped sharply, closing the day below 1.11 for the first time since mid-August. Draghi didn’t actually announce new easing measures, but strong hints that the ECB would take action in December was enough to spark a huge euro selloff. The ECB held the benchmark rate at 0.05%, but said that a rate cut was a possibility, and that a cut to deposit rates (currently at -0.2%) were also discussed. As for quantitative easing (QE), which has been the ECB’s “weapon of choice” this year, Draghi said the program would continue in 2016 or beyond, if needed. Under the current QE program, the ECB is purchasing assets at the rate of EUR 60 billion/mth. Any increase in QE levels would send interest rates lower and hence push down on the euro. This was underscored in March of this year, when the euro plunged to 10-year lows after the ECB introduced QE. The markets will now be on alert for further easing measures from the ECB, and any hints in this regard from Draghi or other ECB policymakers could send the euro tumbling yet again.
The German economy hasn’t looked sharp in recent releases, but the October PMIs was generally positive. German Manufacturing PMI softened to 5.16 points, but this still points to expansion and was close to the forecast of 51.8 points. German Services PMI improved to 55.2 points, its best showing since February. This figure easily beat the estimate of 54.0 points. The Eurozone PMIs were a similar story, as the Manufacturing PMI of 52.0 nosed above the forecast of 51.8, while Services PMI came in at 55.2 points, above the estimate of 54.0 points.
US releases looked sharp on Thursday, as Unemployment Claims, a key release, came in at 259 thousand, beating the estimate of 266 thousand. This was slightly higher than the previous reading of 255 thousand, but marked the third straight week that the indicator beat the forecast. The four-week moving average of claims, which reduces the volatility of the weekly jobless reports, is currently at its lowest level since 1973. These figures point to a stronger labor market, but the next big test comes in early November, with the publication of Nonfarm Payrolls. Meanwhile, Existing Housing Sales had a banner September, improving to 5.55 million, crushing the estimate of 5.38 million. We’ll get a look at additional housing indicators next week.
Recent US data has not been has strong as hoped, with key numbers sending a mixed message about the health of the economy. This has reduced the likelihood of a rate hike by the Federal Reserve before the end of 2015. The markets remain frustrated about the Fed’s lack of communication with the markets, as FOMC members continue to send out contradictory messages about the Fed’s plans. Still, an improvement in US numbers, especially employment and consumer indicators, could quickly revive speculation about a rate hike and boost the US dollar. Next week promises to be interesting, as the Federal Reserve issues a policy statement after its meeting. This will be followed by the release of the Advance GDP report, a market-mover event.
Friday (Oct. 23)
- 7:00 French Flash Manufacturing PMI. Estimate 50.2 points. Actual 50.7 points.
- 7:00 French Flash Services. Estimate 51.9 points. Actual 52.3 points.
- 7:30 German Flash Manufacturing PMI. Estimate 51.8 points. Actual 51.6 points.
- 7:30 German Flash Services PMI. Estimate 54.0 points. Actual 55.2 points.
- 8:00 Eurozone Manufacturing PMI. Estimate 51.8 points.
- 8:00 Eurozone Flash Services PMI. Estimate 53.6 points.
- 9:00 Italian Retail Sales. Estimate 0.3%.
- 13:00 Belgian NBB Business Climate. Estimate -6.6 points.
- 13:45 US Flash Manufacturing PMI. Estimate 52.8 points.
Monday (Oct. 25)
- 9:00 German Ifo Business Climate.
*Key releases are highlighted in bold
*All release times are GMT
EUR/USD for Friday, October 23, 2015
EUR/USD October 23 at 8:45 GMT
EUR/USD 1.1130 H: 1.134 L: 1.1075
- EUR/USD has posted slight gains in the Asian and European sessions.
- 1.1105 is a weak support level.
- 1.1214 is an immediate resistance line.
- Current range: 1.1105 to 1.1214
Further levels in both directions:
- Below: 1.1105, 1.1017, 1.0941 and 1.0847
- Above: 1.1214, 1.1296, 1.1392 and 1.1470
OANDA’s Open Positions Ratio
EUR/USD ratio is showing a strong gain in long positions, which is consistent with the sharp losses sustained by EUR/USD on Thursday. Long positions currently have a majority (56%) on Friday. This points to trader sentiment in favor of the euro moving higher.