EUR/USD – Almost Unchanged Ahead of Non-Farm Payrolls

EUR/USD is showing very little change on Tuesday, continuing the lack of movement we have seen since the beginning of the week. In Tuesday’s European session, the pair is trading in the mid-1.36 range. On Monday, US Existing Home Sales posted a drop in September and fell short of the estimate. Today’s highlights are Non-Farm Payrolls and the Unemployment Rate, which were postponed due to the shutdown. There are no Eurozone releases on Tuesday.

We’ll finally get a look at some key US employment data on Tuesday. The recent government shutdown cancelled some US economic releases, notably Non Farm Payrolls, one of the most important employment releases. The September report and the Unemployment Rate were supposed to be released in early October, but have been rescheduled for release on Tuesday. The NFP release could have a major impact on EUR/USD. Meanwhile, last week’s Unemployment Claims came in at 357 thousand, very close to the estimate of 358 thousand. This figure was an improvement from last week, but still well above previous releases. The shutdown inflated the release, as hundreds of thousands of Federal employees were laid off. This week’s estimate is lower, with an estimate of 341 thousand.

After a bitter political struggle which saw the US on the brink of a sovereign default, the Republicans and Democrats finally reached an agreement last week to reopen the government and raise the debt ceiling. However, the deal provides short-term relief only – the government will be funded until January 15, while the debt limit will be raised until February 7. So, we could be right back where we started in just a few months. The dollar initially gained ground after the agreement was announced, but was broadly lower as optimism faded. On Friday, EUR/USD touched above the 1.37 line, an eight-month high.

Inflation in the Eurozone continues to be low, as underscored by German PPI which posted a modest gain of 0.3%. This was the indicator’s first gain since January. Other inflation indicators have been weak, pointing to sluggish economic activity. The ECB has stated that its inflation target is “close to, but below 2%”, but Eurozone CPI releases continue to fall short of this target and the September releases came in at 1.1%. The ECB is reluctant to lower interest rates in order to boost inflation, so it seems low inflation will remain until economic growth picks up.

The markets had expected the Federal Reserve to taper QE back in September, but the prolonged shutdown and debt crisis will likely mean that the Fed will shy away from any QE moves until early next year. On Monday, Chicago Fed Reserve President Charles Evans reiterated his support for continued monetary stimulus, saying that the Fed would likely need a few more months of US employment data before reducing QE. Currently, the Fed is purchasing $85 billion worth of bonds each month, and any scaling back will have a strong impact on the US dollar. Evans said that he doesn’t expect the Fed to make a move at the December policy meeting, given that the deal reached in Congress to reopen the government and raise the debt ceiling does so only for a few months.

EUR/USD for Tuesday, October 22, 2013

EUR/USD October 22 at 10:25 GMT

EUR/USD 1.3675 H: 1.3682 L: 1.3662

EUR/USD Technical

• EUR/USD is showing little movement in Tuesday trading, as the pair trades in the mid-1.36 range.
• The pair is facing resistance at 1.3786. This is followed by resistance at 1.3893, which has held firm since October 2011.
• EUR/USD continues to receive weak support at 1.3649. This is followed by stronger support at 1.3585.
• Current range: 1.3649 to 1.3786

Further levels in both directions:

• Below: 1.3649, 1.3585, 1.3500, 1.3410 and 1.3335
• Above: 1.3786, 1.3893, 1.4000 and 1.4143

OANDA’s Open Positions Ratio

EUR/USD ratio has reversed directions and is showing movement towards long positions on Tuesday. This is not consistent with the movement of the pair, which is showing very little movement. The ratio continues to be dominated by short positions, indicating a strong trader bias towards the US dollar posting gains against the euro.

EUR/USD has had a very quiet week, but that could change later today, with the release of the US Non-Farm Payrolls. We can expect some volatility from the pair if the release is not in line with market expectations.

EUR/USD Fundamentals

• 12:30 US Non-Farm Employment Change. Estimate 182K.
• 12:30 US Unemployment Rate. Estimate 7.3%.
• 12:30 US Average Hourly Earnings. Estimate 0.2%.
• 13:00 US TIC Long-Term Purchases. Estimate 30.9B.
• 14:00 US Construction Spending. Estimate 0.5%.
• 14:00 US Richmond Manufacturing Index. Estimate 0 points.
• 14:30 US Natural Gas Storage. Estimate 81B.

*Key releases are highlighted in bold

*All release times are GMT

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