EUR/USD – Euro Rises After Disappointing US Jobs Data

* G7 meeting starts in Brussels
* US private employment disappoints at 179,000
* European inflation puts further pressure on ECB
* Negative deposit rates expected on Thursday

EUR/USD is rising on Wednesday, as the pair trades above the 1.36 in the New York session. The pair continues to wait on the outcome of tomorrow’s ECB meeting. The expectation is for the central bank to finally act to try and reduce the pace of deflation in the Eurozone. This would further weaken the EUR. Friday NFP numbers will have the final say on this week. Today ADP employment numbers which measure private payrolls was lower than expected that could signal a disappointing NFP tomorrow. The harsh weather effects appear to still have an impact on the US economy. If NFP is able to beat expectations and the ECB has acted as needed, there will be a wear EUR trend forming.

With Eurozone inflation mired at low levels, there is a strong likelihood that the ECB could finally pull the trigger and take action at its policy meeting on Thursday. The central bank could elect to reduce the benchmark interest rate or deposit rates. However, the latter is currently at the zero level, and the ECB has never before lowered deposit rates into negative territory. Another option is asset purchases, which has been used extensively by the US and UK central banks.

The G7 meeting in Brussels take on a significant geopolitical weight given the current situation in Ukraine. The meeting was scheduled to happen in Sochi, Russia. The change of location was needed to give objectivity to the meeting as Russia has begrudgingly ordered troops to pull back from Ukrainian borders. Pro-Moskow rebels continue to cause infighting that has resulting in a climbing death toll for both sides. Russia is the largest energy provider to the EU in particular Germany. The dispute has not had a deep economic impact, but the challenge is how to balance the economic needs of Europe versus the political principles at the G7.

Yesterday the Eurozone inflation was at a four year low. The 18 country region posted a 0.5% way below the ECB’s target of 2%. The threat of deflation is very real and various agencies and commentators have pointed out that something must be done to avoid a Japanization of Europe. Low inflation and subsequently deflation dissuades consumers whose spending is needed to boost the economy into recovery mode.

EUR/USD for Wednesday, June 4, 2014

EUR/USD June 4

EUR/USD Technical

S3 S2 S1 R1 R2 R3
1.3531 1.3559 1.3592 1.3653 1.3681 1.3714
  • Weekly support levels still hold
  • If a sell-off materializes this year low of 1.3475 is a target
  • Stochastics and RIS remain neutral

Further levels in both directions:

  • Below: 1.3580, 1.3555, 1.3520, 1.3500, 1.3455
  • Above: 1.3665, 1.3680, 1.3705, 1.3750, 1.3780

OANDA’s Open Positions Ratio

EUR/USD ratio is pointing to slight net long indicator. Traders have been uncertain on what the ECB action will be and its likely impact. The expectations are pointing to negative deposit rates which can depreciate the EUR. The proximity of the US NFP figures complicates trading decisions as the ADP payroll was disappointing. Better US employment would have boosted the USD recovery and added to the expected EUR weakness.

EUR/USD Fundamentals

  • G7 Meetings
  • GBP Asset Purchase Facility
  • GBP Official Bank Rate
  • GBP MPC Rate Statement
  • EUR Minimum Bid Rate
  • ECB Press Conference
  • USD Unemployment Claims

*Key releases are highlighted in bold

*All release times are GMT

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.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency
trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza