EUR/USD – Dollar Under Pressure As US Government Shuts Down

EUR/USD has posted slight gains in Tuesday trading. Earlier in the day, the pair rose above 1.3570, a level not seen since February. The dollar is under pressure as the US government has shut down non-essential services, as Congress failed to resolve the budget deadlock. In economic news, Spanish and Italian PMIs missed their estimates. German Unemployment Change disappointed, coming in way above the estimate, while the Eurozone Unemployment Rate edged lower. Over in the US, today’s key event is ISM Manufacturing PMI. The index has looked strong in recent releases and little change is expected in the September release.

With Congress failing to reach an agreement on the budget before October 1, the US government has now shut down non-essential services. This last happened in 1996, and politicians on both sides of the divide will be trying to hammer out a compromise to end the crisis. Both sides seem entrenched in their positions. Republicans want to defund Obamacare before they approve a budget, and the Democrats are determined to protect their health care bill. If things are resolved sometime this week, it will have been more of a nuisance than a crisis. However, a much more serious crisis could occur in two weeks if Congress doesn’t reach an agreement on raising the debt ceiling. If that happens, the Treasury would be unable to pay all of its bills, and the economic fallout could be tremendous.

Employment data out of Europe was a mix on Tuesday. There was good news as the Eurozone Unemployment Rate dropped from 12.1% to 12.0% in September, a five-month low. However, German Unemployment Change jumped to its highest level in over four years, rising from 7 thousand to 25 thousand. This surprised the markets, which had anticipated a decline of -7 thousand. Even though the Eurozone appears to have exited the recession, high unemployment continues to weigh on the recovery and job creation remains weak.

There is political drama across the Atlantic as well, as the government collapsed over the weekend, as ex-PM Silvio Berlusconi pulled his ministers out of the coalition government led by Enrico Letta. Berlusconi urged Letta to dissolve parliament and call new elections, but Letta has opted to seek a vote of confidence on Wednesday, hoping to keep his battered coalition together. Italian politics are often full of surprises and twists, and we could be in for quite a show this week.

EUR/USD for Tuesday, October 1, 2013

EUR/USD 1.3543 H: 1.3587  L: 1.3518

EUR/USD Technical

• EUR/USD is showing some volatility in Tuesday trading. The dollar is under pressure, as the pair touched a high of 1.3587 in the European session, briefly breaking through resistance at 1.3585. This is followed by a strong resistance line at 1.3649. This line has not been tested since early February.
•  The pair continues to receive support at 1.3500. With the current volatility that we are seeing from the pair, this line cannot be considered safe. This is followed by support at 1.3410.
• Current range: 1.3500 to 1.3585

Further levels in both directions:

• Below: 1.3500, 1.3410, 1.3300, 1.3162 and 1.3100
• Above: 1.3585, 1.3649, 1.3786, 1.3893 and 1.4000

OANDA’s Open Positions Ratio

EUR/USD ratio continues to show little movement, a pattern which began last week. This is not reflected in the current movement of the pair, as the euro has posted modest gains. The ratio continues to have a solid majority of short positions, indicative of a strong trader bias towards the US dollar reversing direction and climbing to higher ground.

EUR/USD continues to trade at high levels, and reached close to the 1.36 line earlier in the day. We could see some movement from the pair during the day as Congress tackles the budget crisis. As well, the US will release a key PMI later in the day.

EUR/USD Fundamentals

• 7:15 Spanish Manufacturing PMI. Estimate 51.6 points. Actual 50.7 points.
• 7:15 Italian Manufacturing PMI. Estimate 51.2 points. Actual 50.8 points.
• 7:55 German Unemployment Change. Estimate -5K. Actual 25K.
• 8:00 Eurozone Final Manufacturing PMI. Estimate 51.1 points. Actual 51.1 points.
• 8:00 Italian Monthly Unemployment Rate. Estimate 12.2%. Actual 12.0%.
• 9:00 Eurozone Unemployment Rate. Estimate 12.1%. Actual 12.0%.
• 13:00 US Final Manufacturing PMI. Estimate 52.8 points.
• 14:00 US ISM Manufacturing PMI. Estimate 55.3 points.
• 14:00 US ISM Manufacturing Prices. Estimate 55.2 points.
• Tentative – US Construction Spending. Estimate 0.5%.
• All Day – US Total Vehicle Sales. Estimate 16.1M.

*Key releases are highlighted in bold

*All release times are GMT

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.