EUR/USD – Euro Ticks Lower as German, Eurozone Mfg. PMIs Meet Expectations

The euro has posted small losses in the Thursday session. Currently, EUR/USD is trading at 1.1220. On the release front, German and the Eurozone Manufacturing PMIs both indicated expansion. German Manufacturing PMI improved to 59.4, a shade under the estimate of 59.5. The Eurozone report rose to 57.0, matching the forecast. The US will release ISM Manufacturing PMI. Employment data is in the spotlight for the remainder of the week. Thursday’s releases include ADP Nonfarm Payrolls and unemployment claims. On Friday, we’ll get a look at the official Nonfarm Employment Change, which is expected to drop to 186 thousand. The US will also release wage growth and the unemployment rate.

The markets were all ears on Monday as ECB President Mario Draghi testified before the EU parliamentary committee for economic affairs. Draghi acknowledged that the euro-area economy was improving, but said that inflation and wage growth remained weak, requiring the ECB to continue its asset-purchase program. The scheme is due to wind up in December, and stronger data had raised speculation that the central bank might revisit its monetary stance and perhaps taper the program at the June policy meeting. Draghi’s message remains one of caution, and appears to be putting the markets on notice that any moves in June will likely be of a minor nature.

Is the German locomotive slowing down? As the eurozone’s largest economy, a strong and reliable German economy has been instrumental in the eurozone’s impressive improvement in the first quarter of 2017. However, the latest consumer spending numbers disappointed the markets. In April, retail sales declined 0.2%, compared to a forecast of +0.4%. This marked the third decline in 2017, and if there is further contraction in the second quarter, the eurozone economy could be in trouble. Although the German labor market remains strong, this has not translated into higher inflation, which declined 0.2% in May, after a flat reading of 0.0% in April.

The US economy expanded at an annual rate of 1.2% in the first quarter, according to its second estimate for GDP. This was considerably higher than the 0.7% gain which was reported in the first estimate in April. Still, this figure is the lowest in a year, and well off the 2.1% gain in Q4. Business spending remains weak, and although consumer confidence remains at high levels, consumer spending has not kept up, as retail sales was softer than expected in April. Will this lead to the Fed rethinking a June rate hike? The markets don’t appear concerned, as the odds of a 0.25% rate hike have increased to 88%. At the same time, the likelihood of a rate hike in the second half of 2017 are low. The odds for a September rate are just 26%, with the markets unclear on whether the Fed will make further moves this year if inflation remains below the Fed target. Political uncertainty remains a serious concern, as the Trump administration is embroiled in scandals, with several congressional investigations probing into Trump’s alleged connections with Russian politicians. A weakened White House raises doubts if Trump will be able to keep his election promises to lower taxes and cut government spending.

EUR/USD Fundamentals

Thursday (June 1)

• 3:15 Spanish Manufacturing PMI. Estimate 54.9. Actual 55.4
• 3:45 Italian Manufacturing PMI. Estimate 56.1. Actual 55.1
• 3:50 French Final Manufacturing PMI. Estimate 54.0. Actual 53.8
• 3:55 German Final Manufacturing PMI. Estimate 59.4. Actual 59.5
• 4:00 Eurozone Final Manufacturing PMI. Estimate 57.0. Actual 57.0
• Tentative -French 10-y Bond Auction
• 7:30 US Challenger Job Cuts
• 8:15 US ADP Nonfarm Employment Change. Estimate 181K
• 8:30 US Unemployment Claims. Estimate 239K
• 8:30 US Revised Nonfarm Productivity. Estimate -0.6%
• 8:30 US Revised Unit Labor Costs. Estimate 3.0%
• 9:45 US Final Manufacturing PMI. Estimate 52.5
• 10:00 US ISM Manufacturing PMI. Estimate 54.7
• 10:00 US Construction Spending. Estimate 0.5%
• 10:00 US ISM Manufacturing Prices. Estimate 67.0
• 10:30 US Natural Gas Storage. Estimate 78B
• 11:00 US Crude Oil Inventories. Estimate -2.7M
• All Day – US Total Vehicle Sales. Estimate 17.0M

Friday (June 2)

• 8:30 US Average Hourly Earnings. Estimate 0.2%
• 8:30 US Nonfarm Employment Change. Estimate 186K
• 8:30 US Unemployment Rate. Estimate 4.4%

*All release times are EDT

*Key events are in bold

EUR/USD for Thursday, June 1, 2017

EUR/USD Thursday, June 1 at 6:40 EDT

Open: 1.1126 High: 1.1149 Low: 1.1109 Close: 1.1143

EUR/USD Technical

EUR/USD was flat in the Asian session and has inched lower in European trade

• 1.1122 is providing weak support
• 1.1242 is the next resistance line

Further levels in both directions:

• Below: 1.1122, 1.0985 and 1.0873
• Above: 1.1242, 1.1366, 1.1465 and 1.1534
• Current range: 1.1122 to 1.1242

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged in the Thursday session. Currently, short positions have a majority (70%), indicative of EUR/USD continuing to move lower.

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.