EUR/USD – Euro Tumbles 200 Points on ECB Stimulus Move

What had been an uneventful week for EUR/USD changed dramatically on Thursday, as the pair plunged some 200 points. This followed the ECB announcement of a broad cut to interest rates and plans to introduce quantitative easing. On Friday, the pair has steadied and is trading in the mid-1.29 range. Taking a look at Friday’s events, German Industrial Production sparkled, with a gain of 1.9%. The US will release Nonfarm Employment Change and the unemployment rate.

It’s no exaggeration to state that Thursday was a shocker, as dramatic monetary action by the ECB sent the euro reeling below the 1.30 level. The markets had not expected any change to interest rates, but the ECB took the axe for the second time in three months, cutting the benchmark rate to a record low of 0.05%, down from 0.15%. As well, the deposit facility rate was lowered to -0.20% from -0.10% and the marginal lending rate dropped to 0.30% from 0.40%. ECB head Mario Draghi had more in store, saying that the central bank plans to implement an asset purchase program (QE). Draghi didn’t elaborate, saying the ECB would provide more details in October. The interest rate cuts and QE scheme are intended to bolster anemic growth in the Eurozone and combat the growing threat of deflation.

Recent German numbers have not looked sharp, but this week’s manufacturing numbers continue to impress. German Industrial Production gained 1.9%, its strongest showing in 2014. This handily beat the estimate of 0.5%. Earlier in the week, Factory Orders sparkled. The indicator jumped 4.6% last month, its highest gain since November 2011. This easily beat the estimate of 1.6%, and follows two straight declines.

US employment numbers were a disappointment on Thursday. ADP Nonfarm Payrolls slipped to 204 thousand last month, marking a 3-month low. This was well off the estimate of 218 thousand. Unemployment Claims edged higher to 302 thousand, above the estimate of 298 thousand. Will the official Nonfarm Payrolls follow suit with a weak reading? Last month’s release missed expectations, and if the key indicator repeats with another weak reading, the high-flying US dollar could lose ground.

EUR/USD for Friday, September 5, 2014

EUR/USD September 5 at 9:10 GMT

EUR/USD 1.2955 H: 1.2957 L: 1.2925

EUR/USD Technical

• EUR/USD was flat in the Asian session. The pair has edged higher in European trade.
• 1.2984 is an immediate resistance line. 1.3104 is stronger.
• 1.2905 is providing support.
• Current range: 1.2905 to 1.2984

Further levels in both directions:

• Below: 1.2905, 1.2806, 1.2688 and 1.2518
• Above: 1.2984, 1.3104, 1.3175 and 1.3288

OANDA’s Open Positions Ratio

EUR/USD ratio is pointing to gains in long positions on Friday. This is consistent with the pair’s movement, as the euro has made small gains. EUR/USD continues to show a strong majority of long positions, indicative of trader bias towards the euro heading to higher ground.

EUR/USD Fundamentals

• 00:15 US FOMC Member Richard Fisher Speaks.
• 1:00 US FOMC Member Narayana Kocherlakota Speaks.
• 6:00 German Industrial Production. Estimate 0.5%. Actual 1.9%.
• 9:00 Eurozone Revised GDP. Estimate 0.0%.
• 12:30 US Nonfarm Employment Change. Estimate 226K.
• 12:30 US Unemployment Rate. Estimate 6.1%.
• 12:30 US Average Hourly Earnings. Estimate 0.2%.

*Key releases are highlighted in bold

*All release times are GMT

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