EUR/USD – Euro Backtracks, Crashes Below 1.30 Level as Portugal Crisis Worsens

The euro started the new trading week with gains, but has reversed direction and has lost close to one cent against the US dollar since Tuesday. EUR/USD crashed below the 1.30 line on Tuesday as a political crisis rocked Portugal. The pair’s downward trend continued on Wednesday, as the Italian and Eurozone Service PMIs fell short of their estimates. However, there was some good news from Eurozone Retail Sales, which climbed to a four-month high. In the US, it promises to be a busy day with four major releases later on – ADP Non-Farm Payrolls, Trade Balance, Unemployment Claims and the ISM Non-Manufacturing PMI.

Portugal finds itself gripped in a deep political crisis, which sent the euro lower and could have repercussions for the entire Eurozone. The country entered into a bailout agreement back in 2011, worth EUR 78 billion. In order to qualify for the bailout funds, Portugal agreed to implement tough austerity measures. However, the economy has not bounced back as hoped, as Portugal been stuck in a recession for three years and unemployment is at a staggering 18%. Finance Minister Vitor Gaspar, who has been in charge of the austerity drive, shocked the markets by resigning on Monday, and the crisis has intensified with the resignation of the Portuguese foreign minister. With the crisis intensifying, the euro could take a hit. 

Spanish data has been a pleasant surprise this week. The week started with Spanish Manufacturing PMI rising to the 50-point level for the first time since in two years. Spanish Unemployment Change sparkled, dropping by 127.2 thousand. This easily beat the estimate of -83.5 thousand. The markets had expected a strong seasonal reading, but the release exceeded all expectations. There was more good news on Wednesday, as Spanish Services PMI showed a slight gain, and matched the estimate of 47.8 points. Further strong releases from Spain will be very welcome news and could boost the euro.

Global growth has been sputtering for some time, and there was more bad news on Friday, as an HSBC report downgraded its forecast for global growth. Global GDP was cut from 2.8% to 2.0% in 2013, and from 3.1% to 2.6% in 2014. In its report, HSBC said that it had lowered its forecast due to the US Federal Reserve decision to cut QE, as well as a sharp slowdown in China and other emerging countries such as India and Brazil. The report also revised China’s GDP from 8.2% to 7.4% for 2013 and from 8.4% to 7.4% for next year. Weaker global growth will make it even tougher for the Eurozone economy to get back on its feet and emerge from a harsh recession.

The Greek bailout is back in the news, as there is increasing grumbling in the Eurozone over the lack of progress by Athens in implementing the bailout conditions. The next installment of bailout funds amounts to some EUR 8.1 billion, and is scheduled for delivery in early July. However, the Eurozone feels that Greece is lagging behind in restructuring its public sector, such as tax collection and health care services. Greece has been given until the end of the week to assure its creditors that it is keeping its end of the bargain, or the next tranche of bailout funds could be withheld. Eurozone financial ministers meet on July 8, and the Greek bailout will be high on the agenda.

EUR/USD for Wednesday, July 3, 2013

EUR/USD 1.2966 H: 1.2981 L: 1.2924

EUR/USD Technical

EUR/USD is showing volatility, and continues to lose ground. The pair is facing resistance at the round number of 1.3000. This is a weak line, and could fall if the euro shows any signs of recovery. This is followed by stronger resistance at 1.3050. There is support at 1.2943. This line has weakened as the pair has sagged, and was briefly breached in the European session. This is followed by a stronger support level at 1.2844.

• Current range: 1.2943 to 1.3000

Further levels in both directions:

• Below: 1.2943, 1.2844, 1.2751 and 1.2696
• Above: 1.3000, 1.3050, 1.3100, 1.3162, 1.3271 and 1.3353

OANDA’s Open Positions Ratio

The EUR/USD ratio is unchanged in Wednesday trading, continuing the trend we have seen all week. The pair has been showing significant downward movement, as the euro continues to lose ground. If the volatility affecting the euro continues, we can expect the ratio to swing back into action.

EUR/USD continues to lose ground, and has fallen below the critical 1.30 level. Will the downward spiral continue? We could still see some volatility from the pair during the day, with four key releases due out of the US.

EUR/USD Fundamentals

• 7:15 Spanish Services PMI. Estimate 47.8 points. Actual 47.8 points.
• 7:45 Italian Services PMI. Estimate 47.1 points. Actual 45.8 points.
• 8:00 Eurozone Final Services PMI. Estimate 48.6 points. Actual 48.3 points.
• 9:00 Eurozone Retail Sales. Estimate 0.4%. Actual 1.0%.
• 11:30 US Challenger Job Cuts.
• 12:15 US ADP Non-Farm Employment Change. Estimate 161K.
• 12:30 US Trade Balance. Estimate -40.3B.
• 12:30 US Unemployment Claims. Estimate 345K.
• 14:00 US ISM Non-Manufacturing PMI. Estimate 54.3 points.
• 14:00 US Treasury Secretary Jack Lew Speaks.
• 14:30 US Crude Oil Inventories. Estimate -2.6M.
• 16:00 US Natural Gas Storage. Estimate 75B.

*Key releases are highlighted in bold

*All release times are GMT

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