EUR/USD – Euro Recovers Following ECB Rate Reductions

EUR/USD is stable on Friday, as the pair trades in the mid-1.36 range in the European session. The pair has settled down following some volatile trading on Thursday, in response to ECB rate cuts. On the release front, the German trade surplus climbed to a four-month high, but German Industrial Production fell short of the estimate. In the US, Nonfarm Payrolls and the Unemployment Rate are today’s highlights.

Mario Draghi and his colleagues finally pressed the trigger on Thursday, as the ECB lowered the benchmark interest rate for the first time since November 2013. The rate was lowered to 0.15%, less than expected by the markets, which had anticipated a cut to 0.10%. As well, the marginal lending rate was cut to 0.40% from 0.75% and the deposit facility rate to -0.10% from 0.0%. This is the first time that the ECB has cut deposit rates below 0%, the aim being to encourage banks to lend more funds to businesses rather than have to pay to park funds overnight with the central bank. Draghi opted not to implement a quantitative easing program, but did hint that further action was on the way if necessary.

The ECB’s rate cuts are a belated response to weak growth and low inflation in the Eurozone, but the markets had expected more. The cut in the benchmark rate was not as deep as anticipated, and many market players were looking for an asset purchase program, such as the schemes adopted by the Federal Reserve and Bank of England. The euro did drop as low as the 1.35 line following the ECB move, but recovered and is stable on Friday. It’s safe to say that the markets were underwhelmed by the ECB’s actions, with one analyst saying the ECB had fired a lot of small bullets rather than resorting to a bazooka.

In the US, the spotlight is on employment releases. On Wednesday, ADP Nonfarm Payrolls slipped to 179 thousand, well off the estimate of 217 thousand. Unemployment Claims were not sharp, rising to 312 thousand, up from 300 thousand in the previous reading. The estimate stood at 309 thousand. Nonfarm Payrolls will be released on later on Friday, and a weak reading could weigh on the US dollar. We’ll also get a look at the Unemployment Rate, with little change expected.

EUR/USD for Friday, June 6, 2014

EUR/USD June 6 at 8:30 GMT

EUR/USD 1.3629 H: 1.3664 L: 1.3628

EUR/USD Technical

• EUR/USD has edged lower on Friday.
• 1.3585 continues to provide support. There is stronger support at 1.3487.
• On the upside, 1.3649 is under pressure. 1.3786 is stronger.
• Current range: 1.3585 to 1.3649

Further levels in both directions:

• Below: 1.3585, 1.3487, 1.3346 and 1.3219
• Above: 1.3649, 1.3786, 1.3893, 1.4000 and 1.4149

OANDA’s Open Positions Ratio

EUR/USD ratio is showing gains in short positions on Friday. This is consistent with the movement of the pair, as the euro has posted modest losses. The ratio currently has a slight majority of short positions, indicative of a trader bias towards the dollar continuing to post gains.

EUR/USD is trading in the mid-1.36 range. The pair has edged lower in the European session.

EUR/USD Fundamentals

• 6:00 German Trade Balance. Estimate 15.1B. Actual 17.7B.
• 6:00 German Industrial Production. Estimate 0.4%. Actual 0.2%.
• 6:45 French Government Budget Balance. Actual -64.2B.
• 6:45 French Trade Balance. Estimate -5.0B. Actual -3.9B.
• 12:30 US Nonfarm Employment Change. Estimate 214K.
• 12:30 US Unemployment Rate. Estimate 6.4%.
• 12:30 US Average Hourly Earnings. Estimate 0.2%.
• 19:00 US Consumer Credit. Estimate 15.3B.

*Key releases are highlighted in bold

*All release times are GMT

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