EUR/USD – Volatile as Euro PMIs Disappoint Markets

EUR/USD has weakened in Thursday’s European session, and is testing the 1.29 line. The euro lost ground after the release of weak PMI numbers out of the Eurozone, Germany and France. The crisis in Cyprus continues to weigh on the continental currency, as the Cypriot parliament rejected a bailout which included a contentious tax on bank deposit holders. In the US, there were on surprises as the Federal Reserve said it would maintain current interest rate and asset purchase levels. Looking at other releases on Thursday, Spain holds a government auction for 10-year bonds. In the US, it promises to be a busy day with three major releases on the schedule – Unemployment Claims, Existing Home Sales and the Philly Fed Manufacturing Index.

Thursday started on the left foot as PMI numbers from across the Eurozone were a major disappointment. In France, Manufacturing PMI came in at 43.9 points and Services PMI at 41.9, both of which were below expectations. It was a similar story with Eurozone PMIs, as the Manufacturing PMI came in at 46.6 points and Services PMI at 46.5, both below their respective estimates. German Manufacturing PMI, a key release, dropped below the 50-point level to 48.9 points, pointing to contraction in the German manufacturing sector. German Services PMI managed to stay above the 50-point threshold at 51.6 points, but this was well below the forecast of 54.9 points. These numbers point to continuing weakness in the Eurozone economy, but the markets are particularly concerned about the German data, which points to trouble in the Eurozone’s largest economy. The euro is showing volatility following the releases, as it dipped below the 1.29 line before recovering.

Cyprus may be one of the Eurozone’s lightweights, but it continues to be in the financial headlines. What was supposed to be a routine bailout package for the island country has ballooned into a full-blown Eurozone financial crisis. The reason was a controversial bank levy provision in the agreement, which sent the currency markets spinning early in the week. This tax, which was aimed at all bank deposit holders,  was intended to raise 5.8 billion euros, which would be a condition for Cyprus receiving the bailout funds. Cypriots were outraged, and on Tuesday, the Cypriot parliament voted overwhelmingly against the bailout. The government was not happy with the deal either, but had warned that rejecting the agreement could lead to a collapse of the nation’s banking sector. Meanwhile, the Eurozone is scrambling to salvage the bailout deal. German Chancellor Angela Merkel said she was ready to work with Cyprus to find a solution, and officials from the EU and IMF, who are the creditors behind the bailout, are in Cyprus for talks with the Cypriot government to discuss ways of making the bailout more palatable.

In the US, there were no surprises from the US Federal Reserve, which announced that it was maintaining interest rates as well as the current round of asset purchases. The benchmark interest rate remains at 0%-0.25%, and the Fed will continue to purchase $85 billion in assets each month. There had been talk of the Fed modifying its monetary policy, with the US economy shown signs of improvement, such as lower unemployment and stronger consumer spending. However, Fed chief Bernanke said that the US labor market was still weak and also noted concern about recent tax increases and federal spending cuts.

EUR/USD for Thursday, March 21, 2013

1.2914 H: 1.2955 L: 1.2880

EUR/USD Technical

EUR/USD is showing volatility in Thursday’s European session, after posting gains but then recovering. The pair is facing resistance at 1.2950. This line could be tested if the euro can sustain its upward momentum. The next line of resistance is the round number of 1.3000. On the downside, there is support at 1.2802. This is followed by a support line at 1.2757, which has remained intact since mid-November 2012.

Current range: 1.2882 to 1.2950.

Further levels in both directions:

• Below: 1.2882, 1.2802, 1.2757 and 1.2683
• Above: 1.2950, 1.3000, 1.3080, 1.3130, 1.3170 and 1.3280

OANDA’s Open Position Ratios

The EUR/USD ratio has reversed directions and is pointing to strong movement towards short positions. The pair did lose ground early in the European session, but has recovered most of these losses. The ratio continues to be close to an even split between long and short open positions, signifying a split in trader sentiment as to what to expect from EUR/USD. If the ratio continues to be active, we can expect further fluctuations from the pair. 

A host of weak PMIs from Germany, France and the Eurozone resulted in the euro dropping and dipping below the 1.29 line. The euro has recovered most of these losses in what has been a volatile European session. We can expect the fluctuations to continue, as the US releases three major items later today.

EUR/USD Fundamentals

• 8:00 French Flash Manufacturing PMI. Estimate 44.4 points. Actual 43.9 points
• 8:00 French Flash Services PMI. Estimate 44.1 points. Actual 41.9 points
• 8:30 German Flash Manufacturing PMI. Estimate 50.8 points. Actual 48.9 points
• 8:30 German Flash Services PMI. Estimate 54.9 points. Actual 51.6 points
• 9:00 Eurozone Flash Manufacturing PMI. Estimate 48.2 points. Actual 46.6 points
• 9:00 Eurozone Flash Services PMI. Estimate 48.2 points. Actual 46.5 points
• Tentative: Spanish 10-year Bond Auction
• 12:30 US Unemployment Claims. Estimate 343K
• 13:00 US Flash Manufacturing PMI. Estimate 55.1 points
• 13:00 US HPI. Estimate 0.7%
• 14:00 US Existing Home Sales. Estimate 5.02M
• 14:00 US Philly Fed Manufacturing Index. Estimate -1.6 points
• 14:00 US CB Leading Index. Estimate 0.3%
• 14:30 US Natural Gas Storage. Estimate -70B

*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.