EUR/USD – Surging Euro Punches Past 1.16, Eurozone PPI Improves

EUR/USD has posted strong gains on Tuesday, continuing the upward trend which marked the Monday session. The pair is trading just under the 1.16 line in the European session. On the release front, there are no major events out of Eurozone or the US. Eurozone PPI posted a gain of 0.3%, beating the estimate of 0.1%. On Wednesday, the US will release two key indicators –  ADP Nonfarm Employment Change and ISM Non-Manufacturing PMI.

The euro continues to climb, gaining 250 points since Thursday. EUR/USD took advantage of weak US manufacturing data at the start of the week and briefly pushed past the 1.16 line, the first time that has happened since August 2015. Eurozone releases started off the week on a positive note, as the April German and Eurozone Manufacturing PMIs both pointed to slight growth in the manufacturing sector. German Manufacturing PMI climbed to 51.8 points, close to the forecast of 51.9 points. The Eurozone release was almost unchanged at 51.7 points, beating the estimate of 51.5 points. German key releases were soft last week, raising concerns about the strength of Europe’s largest economy. Preliminary CPI came in at -0.2%, its first decline in four months. Retail Sales disappointed, posting a sharp decline of 1.1%. The markets had expected a gain of 0.3%.

The ECB’s battle with inflation shows no signs of abating, as the threat of deflation remains a major headache for Mario Draghi & Co. The ECB has lowered interest rates to zero and expanded its asset purchase program, but inflation refuses to move higher. In April, Eurozone CPI declined 0.2%, weaker than the estimate of -0.1%. This marked a third straight decline in consumer inflation, and analysts expect that Draghi will have to take further steps to extricate the Eurozone from the threat of deflation. The ECB wants to see inflation close to 2.0%, but clearly that target will not be achieved anytime soon. Despite the dismal inflation numbers, the economy continues to expand. Eurozone GDP grew by 0.6% in the first quarter, compared to a 0.3% gain in the fourth quarter of 2015. The French and Spanish economies grew 0.5% and 0.8% respectively in the first quarter, and Germany will release its GDP report next week.

On Monday, US ISM Manufacturing PMI, a key gauge of manufacturing output, missed expectations. The index dipped to 50.8 points, shy of the estimate of 51.6 points. This reading just above the 50-point line points to near stagnation in the manufacturing sector. Last week, Core Durable Goods dropped 0.2%, well off the estimate of a 0.6% gain. This marked the fourth decline in five months. Durable Goods Orders was stronger at 0.8%, but also missed expectations, as the estimate stood at 1.9%. Also on Monday, Final Manufacturing PMI and Construction Prices also missed expectations, but ISM Manufacturing Prices easily beat the forecast. Manufacturing remains a sore spot, as the sector continues to lag behind the economy’s generally solid performance, as the global demand for US products has taken its toll.

The first quarter of 2016 has been marked by shaky global markets and a sharp drop in oil prices, so slower growth for the US economy was not unexpected. GDP climbed 0.5% in the first quarter, shy of the estimate of 0.7%. This was considerably lower than the 1.4% gain in the fourth quarter of 2015, and marked the weakest quarter of growth in two years. Although economic growth remains moderate, the lukewarm reading will not help the cause of Fed policymakers who favor a rate hike, especially with inflation at low levels. The markets, which were not expecting an April hike, are keeping a close eye on key numbers, looking for clues as to whether the Fed will make a move at its June policy meeting. The April policy statement sounded cautiously optimistic about the US economy, but did not provide any clues about a hike in June.

EUR/USD Fundamentals

Tuesday (May 3)

  • 9:00 Eurozone PPI. Estimate 0.1%. Actual 0.3%
  • 14:00 US IBD/TIPP Economic Optimism. Estimate 46.6
  • 14:30 US FOMC Member Loretta Mester Speaks
  • All Day – US Total Vehicle Sales. Estimate 17.3M

Upcoming Key Events

Wednesday (May 4)

  • 12:15 US ADP Nonfarm Employment Change. Estimate 205K
  • 14:00 US ISM Non-Manufacturing PMI. Estimate 54.9

*Key events are in bold

*All release times are GMT

EUR/USD for Tuesday, May 3, 2016

EUR/USD May 3 at 5:00 GMT

Open: 1.1524 Low: 1.1520 High: 1.1616 Close: 1.1595

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.1278 1.1378 1.1495 1.1609 1.1711 1.1800
  • EUR/USD was flat in the Asian session and has posted strong gains in European trade.
  • 1.1495 is providing strong support
  • 1.1609 was tested earlier in resistance and could break during the day

Further levels in both directions:

  • Below: 1.1495, 1.1378, 1.1278, 1.1172 and 1.1087
  • Above: 1.1609, 1.1711 and 1.1800
  • Current range: 1.1495 to 1.1609

OANDA’s Open Positions Ratio

EUR/USD ratio has not shown much movement, despite strong gains by EUR/USD. Short positions command a strong majority (66%). This is indicative of strong trader bias towards EUR/USD reversing directions and moving to lower ground.

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.

Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.