EUR/USD – Euro Inches Lower on Mixed Services PMIs

EUR/USD has ticked lower in the Thursday session. Currently, the pair is trading at 1.1850, down 0.09% on the day. On the release front, German Final Services PMI dipped to 53.1, short of the estimate of 53.5 points. Eurozone Final Services was stronger, matching the estimate with a reading of 55.4 points. Eurozone Retail Sales edged up to 0.5%, beating the forecast of 0.0%. In the US, there are two key releases. Unemployment Claims is expected at 242 thousand, and the ISM Non-Manufacturing PMI is forecast to slow to 56.9 points. On Friday, the US releases wage growth and non-farm payrolls, so traders should be prepared for some movement from EUR/USD.

The ECB continues to stick with its ultra-accommodative monetary policy, and with the euro-area struggling with weak inflation, no changes are expected in the next few months. Currently, ECB interest rates stand at a flat 0.00%, where they have been pegged since March 2o16. Under the bank’s quantitative easing program (QE), the bank has been purchasing assets at a rate of EUR 60 billion/month. The QE program is scheduled to wind up in December, although the ECB has provided itself with some wiggle room, saying that that it could extend the program “if necessary”. With the eurozone economy finally flexing some muscle in 2017, there has speculation that the ECB would tighten policy, and this has led to some frenzied buying of euros, much to the consternation of the ECB. At a conference of central bankers in June, ECB President Mario Draghi said that the reflationary forces could result in the bank “adjusting the parameters” of current stimulus. The comments did not appear to mark a change in ECB policy, but investors seized on the remarks and the euro soared. The ECB was caught off guard, and resorted to the unusual step of stating that the markets had misinterpreted Draghi’s comments. Given that fiasco, it’s a safe bet that the ECB will be ultra-cautious in upcoming statements in order to avoid any repeat convulsions in the markets. At the same time, as we approach the December timeline for winding up QE, the ECB would do well to act in a transparent fashion and let the markets know if the QE program will indeed wind up in December. A lack of transparency could trigger market volatility, which is precisely what ECB policymakers wish to avoid.

With the Federal Reserve unlikely to raise rates before December, investor attention has shifted to the Fed’s balance sheet, which stands at $4.2 trillion. Fed policymakers have broadly hinted at reducing purchases of bonds and securities starting in September, but San Francisco Fed President John Williams was more forthcoming about the Fed’s plans, likely aimed at giving notice to the markets. In a speech on Wednesday, Williams said that the economy had “fully recovered” from the 2008 financial crisis and called on the Fed to start trimming the balance sheet “this fall”. Williams added that the process would be gradual and would take four years to reduce the balance sheet to a “reasonable size”.  On Wednesday, two other FOMC members also came out in support of starting to taper the balance sheet – St. Louis Fed President James Bullard and Cleveland Fed President Loretta Mester.

EUR/USD Fundamentals

Thursday (August 3)

  • 3:15 Spanish Services PMI. Estimate 58.4. Actual 57.6
  • 3:45 Italian Services PMI. Estimate 54.2. Actual 56.3
  • 3:50 French Final Services PMI. Estimate 55.9. Actual 56.0
  • 3:55 German Final Services PMI. Estimate 53.5. Actual 53.1
  • 4:00 ECB Economic Bulletin
  • 4:00 Eurozone Services PMI. Estimate 55.4. Actual 55.4
  • 4:45 Spanish 10-y Bond Auction. Actual 1.27%
  • 5:00 Eurozone Retail Sales. Estimate 0.0%. Actual 0.5%
  • 5:06 French 10-y Bond Auction. Estimate 0.75%
  • 7:30 US Challenger Job Cuts. Actual -37.6%
  • 8:30 US Unemployment Claims. Estimate 242K
  • 9:45 US Final Services PMI. Estimate 54.2
  • 10:00 US ISM Non-Manufacturing PMI. Estimate 56.9
  • 10:00 US Factory Orders. Estimate 2.9%
  • 10:30 US Natural Gas Storage. Estimate 23B

Friday (August 4)

  • 8:30 US Average Hourly Earnings. Estimate 0.3%
  • 8:30 US Nonfarm Employment Change. Estimate 181K
  • 8:30 US Unemployment Rate. Estimate 4.3%

*All release times are GMT

*Key events are in bold

EUR/USD for Thursday, August 3, 2017

EUR/USD Thursday, August 3 at 6:05 EDT

Open: 1.1856 High: 1.1862 Low: 1.1830 Close: 1.1845

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.1534 1.1616 1.1712 1.1876 1.1996 1.2108

EUR/USD has shown little movement in the Asian and European sessions

  • 1.1712 is a weak support line
  • 1.1876 is the next resistance line

Further levels in both directions:

  • Below: 1.1712, 1.1616, 1.1534 and 1.1465
  • Above: 1.1876, 1.1996 and 1.2108
  • Current range: 1.1712 to 1.1876

OANDA’s Open Positions Ratio

EUR/USD ratio is showing gains in long positions. Currently, short positions have a majority (64%), indicative of EUR/USD continuing to move downwards.

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 and macroeconomic analysis, Kenny Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in major online financial publications including, Seeking Alpha and FXStreet. Kenny has been a MarketPulse contributor since 2012.