EUR/USD – Euro pauses from slide as Italy backtracks on budget

EUR/USD has paused after recording losses for five straight sessions. Currently, the pair is trading at 1.1563, down 0.12% on the day. In economic news, Germany and Eurozone services PMIs improved in September, with readings of 55.9 and 54.7 points, respectively. Eurozone retail sales declined 0.2%, missing the estimate of +0.2%. In the U.S, ADP nonfarm payrolls will kick off a host of employment indicators during the week. The indicator is expected to jump to 185 thousand. We’ll also get a look at ISM Non-Manufacturing PMI, which is forecast to drop to 58.0 points. On Thursday, the U.S releases unemployment claims.

The German and Eurozone services sectors ended the third quarter on a high note, as services PMIs pointed to expansion. German Services PMI climbed from 55.0 to 55.9 points. This reading was the strongest since February, but missed the forecast of 56.5 points. Eurozone Services PMI improved to 54.7, matching the forecast. The news was less rosy from Eurozone retail sales, which posted a decline of 0.2% for a second straight month.

After sharp losses last week, the euro remains under pressure. On Tuesday, EUR/USD touched a low of 1.1505, its lowest level since mid-August. With Italy and the EU on a possible collision course over Italy’s budget, there could be more headwinds for the euro. The European Union is unhappy with the proposed Italian budget, which increases spending, lowers taxes and sets the budget deficit at 2.4% of GDP for 2019. The European Commission must approve the budget, and EU policymakers have been pushing Rome to reduce the current deficit, which stands at 1.6% of GDP. EU Commissioner Pierre Moscovici said last week that the budget could breach EU fiscal regulations and called the Italian deficit “explosive”. The populist Italian government appeared to backtrack on Wednesday, and has now said that the budget deficit could be lowered in 2020 and 2021. Still, the budget remains a sore point for the EU, and the euro could lose ground if the EU and Italy remain at loggerheads over Italy’s fiscal policy.

Euro jumps as Italy revises budget plans

A tempest in a cappuccino cup or mama mia, here we go again?

EUR/USD Fundamentals

Wednesday (October 3)

• 3:15 Spanish Services PMI. Estimate 52.9. Actual 52.5
• 3:45 Italian Services PMI. Estimate 52.8. Actual 53.3
• 3:50 French Final Services PMI. Estimate 54.3. Actual 54.8
• 3:55 German Final Services PMI. Estimate 56.5. Actual 55.9
• 4:00 Eurozone Final Services PMI. Estimate 54.7. Actual 54.7
• 5:00 Eurozone Retail Sales. Estimate 0.2%. Actual 
• 8:05 US FOMC Member Thomas Barkin Speaks
• 8:15 ADP Nonfarm Employment Change. Estimate 185K
• 9:45 US Final Services PMI. Estimate 52.9
• 10:00 US ISM Nonfarm Manufacturing PMI. Estimate 58.0
• 10:30 US Crude Oil Inventories. Estimate 1.1M
• 14:00 US FOMC Member Lael Brainard Speaks
• 14:15 US FOMC Member Loretta Mester Speaks
• 16:00 US Fed Chair Powell Speaks

Thursday (October 4)

• 8:30 US Unemployment Claims. Estimate 214K

*All release times are DST

*Key events are in bold

EUR/USD for Wednesday, October 3, 2018

EUR/USD for October 3 at 5:50 DST

Open: 1.1549 High: 1.1594 Low: 1.1536 Close: 1.1563

EUR/USD Technical

EUR/USD edged higher in the Asian session and has inched lower in European trade

• 1.1553 is providing support. It is a weak line
• 1.1637 is the next resistance line

Further levels in both directions:

• Below: 1.1553, 1.1434, 1.1300 and 1.1190
• Above: 1.1637, 1.1718 and 1.1840
• Current range: 1.1553 to 1.1637

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