EUR/USD – Euro Improves On Spanish and Eurozone Data

EUR/USD has posted gains on Tuesday, as the pair has pushed above the 1.39 line in the European session. On the release front, Spanish releases were excellent, as Unemployment Change plunged and Manufacturing PMI hit a ten-year high. Eurozone Retail Sales posted a gain in April and beat the estimate. In the US, Tuesday’s highlight is Trade Balance.

The euro continues to post gains, and took advantage of strong Spanish numbers on Tuesday. Unemployment Change dropped by 111.6 thousand, crushing the estimate of -49.1 thousand. Unemployment tends to improve in the busy tourist season, but this plunge was clearly much sharper than the markets had anticipated. Spanish Services PMI continues to improve, and the reading of 56.5 marked its highest level since March 2007. The estimate stood at 54.3 points. Meanwhile, Eurozone Retail Sales edged lower to 0.3%, but this was well above the estimate of -0.2%.

Inflation, or rather the lack of, continues to weigh on the Eurozone. PPI posted its third straight decline in April, coming in at -0.2%. Last week, German Preliminary CPI did no better, dipping to -0.2%. The ECB finds itself under pressure to take action but so far has balked. ECB head Mario Draghi has stated that negative deposit rates or even QE are on the table, but the markets have heard this often before and these remarks have not had much effect, as the euro remains at high levels against the US dollar. However, with EUR/USD fast approaching the 1.40 line, we are likely to hear tougher rhetoric from the ECB about the high value of the euro.

US employment releases looked excellent on Friday. Nonfarm Payrolls jumped to 288 thousand, easily beating the estimate of 216 thousand. The Unemployment Rate kept pace, dropping to 6.3%, its lowest level since September 2008. At the same time, the participation rate in the labor force dropped, so slack remains in the US job market, despite the strong releases in April.

As expected, the Federal Reserve trimmed its QE program by $10 billion last week. This marks the fourth cut since December, reducing the asset purchase scheme to $45 billion/month. The tapers are no longer creating headlines as they did just a few months ago, and the dollar didn’t get any lift against its major rivals. What interested the markets more was the Fed statement that interest rates would remain low for a “considerable time” after QE ends. The markets expect QE to wind up before the end of the year, so we could see a rate hike in early 2015, depending of course, on the strength of the US economy and the job market.

EUR/USD for Tuesday, May 6, 2014

EUR/USD May 6 at 9:15 GMT

EUR/USD 1.3925 H: 1.3931 L: 1.3873

EUR/USD Technical

• EUR/USD has posted gains in Tuesday trade. The pair broke above the 1.39 line early in the European session.
• 1.3893 has switched to a support level as the euro improves. 1.3786 is stronger.
• On the upside, there is resistance at the key level of 1.40, which has not been breached since October 2011.
• Current range: 1.3893 to 1.40

Further levels in both directions:

• Below: 1.3893, 1.3786, 1.3649, 1.3585, 1.3410 and 1.3335
• Above: 1.4000, 1.4149, 1.4307 and 1.4480

OANDA’s Open Positions Ratio

EUR/USD ratio is pointing to gains in short positions in Tuesday trading. This is not consistent with the pair’s movement, as the euro has posted gains. The ratio is made up of a majority of short positions, indicative of the dollar reversing positions and moving upwards.

EUR/USD has posted gains in the European session, as the pair trades above the 1.39 line.

EUR/USD Fundamentals

• 7:00 Spanish Unemployment Change. Estimate -49.1 thousand. Actual -111.6 thousand.
• 7:15 Spanish Services PMI. Estimate 54.3 points. Actual 56.5 points.
• 7:45 Italian Services PMI. Estimate 51.2 points. Actual 51.1 points.
• 8:00 Eurozone Final Services PMI. Estimate 53.1 points. Actual 53.1 points.
• 9:00 Eurozone Retail Sales. Estimate -0.2%. Actual +0.3%.
• All Day – ECOFIN Meetings.
• 12:30 US Trade Balance. Estimate -40.1B.
• 14:00 US IBD/TIPP Economic Optimism. Estimate 47.6 points.
• 21:30 US FOMC Member Jeremy Stein Speaks.

*Key releases are highlighted in bold

*All release times are GMT

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