EUR/USD – Euro Edges Higher, German Manufacturing PMI Beats Estimate

EUR/USD continues to have an uneventful week, as the pair trades at 1.1160 on Wednesday. On the release front, German Manufacturing PMI came in at 52.5 points, beating expectations. Eurozone Manufacturing PMI posted a reading of 51.5 points, matching the forecast. The US will also release a key manufacturing indicator, ISM Manufacturing PMI. The markets are expecting a weak reading of 50.5 in the April report. On Thursday, the ECB sets interest rates, while the US releases two key events  – ADP Nonfarm Payrolls and Unemployment Claims.

There were no surprises from the Eurozone manufacturing sector, which continues to show weak growth. German and Eurozone Manufacturing PMIs came in slightly above the 50 level, which separates contraction from expansion. German numbers have been mixed this week. German numbers have started the week with mixed results. Retail Sales, the primary gauge of consumer spending, posted a third straight decline in April, coming in at -0.9%. The markets had expected a gain of 1.0%. There was better news from unemployment claims, which impressed with a drop of 11 thousand, well below the estimate of a decline of 4 thousand.

The ECB will meet on Thursday and release its monthly rate announcement. Interest rates have been pegged at a flat 0.00% for the past two months, but growth and inflation levels remain soft. This was underscored on Wednesday, as German Retail Sales and Eurozone CPI Flash Estimate continue to post declines in 2016. It’s unlikely that the Eurozone economy would earn a passing grade from the ECB, but will this be enough to prod Mario Draghi to take action? The weapons of choice are lowering rates yet again, or expanding the ECB’s asset-purchase program. The markets are not expecting any such moves, but Draghi may well reiterate that the ECB will not hesitate to act if economic conditions, namely growth and inflation indicators, point downwards.

Will the Fed raise rates in June or soon after? Recent comments by Federal Reserve chair Janet Yellen and other Fed policymakers have strongly hinted that a rate hike is on the table this summer. On Friday, Yellen said that if the US economy continued to improve, a rate hike would be appropriate in the “coming months”. This was followed by St. Louis Reserve President James Bullard, who said on Monday that global markets were “well prepared” for a summer interest rate rise, although he didn’t provide any specific dates. Odds of a rate hike in June have increased, but the Fed will be hard-pressed to raise rates if key indicators don’t show improvement, particularly inflation numbers. According to CME Group, traders have priced in a June rate hike at 28%, 60% for July and 68% in September. Market sentiment has strongly shifted towards the Fed raising rates, and this could boost the US dollar against its rivals.

EUR/USD Fundamentals

Wednesday (June 1)

• 7:15 Spanish Manufacturing PMI. Estimate 52.6. Actual 51.8
• 7:45 Italian Manufacturing PMI. Estimate 53.5. Actual 52.4
• 7:50 French Final Manufacturing PMI. Estimate 48.3. Actual 48.4
• 7:55 German Final Manufacturing PMI. Estimate 52.5. Actual 52.1
• 8:00 Eurozone Final Manufacturing PMI. Estimate 51.5. Actual 51.5
• 13:45 US Final Manufacturing PMI. Estimate 50.5
• 14:00 US ISM Manufacturing PMI. Estimate 50.5
• 14:00 US Construction Spending. Estimate 0.5%
• 14:00 US ISM Manufacturing Prices. Estimate 58.0
• All Day – US Total Vehicle Sales. Estimate 17.2M
• 18:00 US Beige Book

Upcoming Key Events

Thursday (June 2)

• All Day – OPEC Meetings
• 11:45 Eurozone Minimum Bid Rate. Estimate 0.00%
• 12:15 US ADP Nonfarm Employment Change. Estimate 177K
• 12:30 ECB Press Conference
• 12:30 US Unemployment Claims. Estimate 270K

*Key events are in bold

*All release times are GMT

EUR/USD for Wednesday, June 1, 2016

EUR/USD June 1 at 9:50 GMT

Open: 1.1133 Low: 1.1114 High: 1.1163 Close: 1.1157

EUR/USD Technical

• EUR/USD was flat in the Asian session and has posted slight gains in European trade
• 1.1172 is a weak resistance line and could see action in the Wednesday session
• 1.1054 is providing support

Further levels in both directions:

• Below: 1.1054, 1.0909 and 1.0821
• Above: 1.1172, 1.1278, 1.1378 and 1.1495
• Current range: 1.1054 to 1.1172

OANDA’s Open Positions Ratio

EUR/USD ratio is showing little movement on Wednesday. Short positions have a slight majority (48%), indicative of slight trader bias towards EUR/USD reversing directions and moving 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.