EUR/USD – Euro Jumps as US Services PMI Slides

The euro is subdued in the Wednesday session, after recording sharp gains in the Tuesday session. Currently, EUR/USD is trading at 1.1240. On the release front, it’s a light day. German Industrial Production declined 1.5%, short of the estimate of 0.0%. In the US, today’s highlight is JOLTS Job Openings. The markets are expecting a slight downturn in August, with an estimate of 5.58 million. On Thursday, The ECB will announce the benchmark interest rate, while the US will release Unemployment Claims.

Soft German manufacturing numbers this week continue to raise concerns about the health of the manufacturing sector. Industrial Production dropped 1.5%, its sharpest decline since August 2014. On Tuesday, Factory Orders posted a small gain of 0.2%, the first gain since March. Last week’s Manufacturing PMI came in at 53.4 points, pointing to slight expansion. Still, this marked the weakest pace of expansion in three months. As the Eurozone’s largest economy, German indicators are often a bellwether for the Eurozone, and if manufacturing data from the bloc is weak, the euro could lose ground.

Eurozone data started the week with mixed results. German and Eurozone Service PMIs pointed to slight expansion in August, but both indicators fell short of their estimates. The German reading of 51.7 was shy of the estimate of 53.3 points and was down sharply from the July reading of 54.4 points. The Eurozone reading was almost unchanged at 52.8 points, shy of the estimate of 53.1 points. There was better news from Eurozone Sentix Investor Confidence, which jumped to 5.6 points, above the forecast of 5.1 points. As well, Eurozone Retail Sales jumped 1.1%, compared to estimate of 0.5%. It was the indicator’s strongest gain since January 2015.

Recent US numbers have been pointing downwards and this has lowered market expectations over a September rate hike. The ISM Non-Manufacturing PMI, a key gauge of the services sector, fell to 51.4 points, its weakest reading since August 2010. The euro took full advantage of the dismal reading, gaining close to 100 points on Tuesday.

The robust US labor market hit a bump in August, as US employment numbers were dismal on Friday. Nonfarm Payrolls plunged to 151 thousand in August, down from 255 thousand a month earlier. This was well short of the forecast of 180 thousand. Wage growth also disappointed, as Average Hourly Earnings edged lower to 0.1%, shy of the forecast of 0.2%. The CME FedWatch Tool is showing a substantial drop in the odds of a rate hike for both September and December – the likelihood of a September rise is at 19%, while the odds of a December hike are down to 39%. Even though the US labor market remains close to full capacity, many FOMC members remain uneasy about a rate hike, especially given the persistent lack of inflation in the economy. Key inflation indicators will be released in mid-September, just before the Fed policy meeting on September 21. These releases could play a critical role in determining if the Fed presses the rate trigger this month, or decides to revisit the rate question in December, exactly a year from the last rate hike. 

EUR/USD Fundamentals

Wednesday (September 7)

• 6:00 German Industrial Production. Estimate 0.0%. Actual -1.5%
• 6:45 French Trade Balance. Estimate -3.7B. Actual -4.5B
• Tentative – German 10-year Bond Auction
• 14:00 US FOMC Member Esther George Speaks
• 14:00 US JOLTS Jobs Openings. Actual 5.58M
• 18:00 US Beige Book

Thursday (September 8)

• 11:45 ECB Minimum Bid Rate. Estimate 0.00%
• 12:30 ECB Press Conference
• 12:30 US Unemployment Claims. Estimate 264K

*All release times are EDT

* Key events are in bold

EUR/USD for Wednesday, September 7, 2016

EUR/USD September 7 at 9:25 GMT

Open: 1.1246 High: 1.1265 Low: 1.1233 Close: 1.1239

EUR/USD Technical

• EUR/USD has posted limited movement in Asian and European sessions
• 1.1278 has weakened in support following strong gains by EUR/USD in the Tuesday session. It could be tested during the day
• 1.1150 is providing strong support

Further levels in both directions:

• Below: 1.1150, 1.1054, 1.0957 and 1.0821
• Above: 1.278, 1.1376 and 1.1467
• Current range: 1.1150 to 1.1278

OANDA’s Open Positions Ratio

EUR/USD ratio has shown strong gains in short positions, following sharp gains by EUR/USD on Tuesday. Short positions have a significant majority (58%), indicative of trader bias towards EUR/USD breaking out and moving higher.

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.