EUR/USD – Euro Loses Ground Despite Solid PMIs

EUR/USD had a busy holiday period, and the pair continues to show movement as we greet 2014. In Thursday’s European session, the pair has lost ground and is trading in the low-1.37 range. In economic news, Eurozone Manufacturing PMIs started out the new year on a positive note. Over in the US, there are two key releases on today’s schedule – Unemployment Claims and ISM Manufacturing PMI.

Eurozone PMIs looked sharp on Tuesday. Spanish, Italian and Eurozone Manufacturing PMIs all improved in December and came in above the 50-point threshold, indicating growth in their respective manufacturing sectors. The positive news was particularly welcome from the Spanish release, which had posted a reading below 50 in November. In the US, Manufacturing PMI has been steadily rising and the markets are expecting another strong reading later on Thursday.

It was not much of holiday for EUR/USD, which showed some strong movement during the Christmas holidays. Low liquidity during the holiday period lead to amplified movement for the pair, and we got a taste of that on Friday. The euro shot up about 200 points as it hit a high of 1.3896. However, it then retracted and closed in the mid-1.37 range. As well, the recent Fed taper decision has fuelled a “risk on” atmosphere which has led to increased selling of the safe-haven US dollar and helped maintain the euro at high levels as we enter 2014.

All eyes will be on Unemployment Claims, which will be released on Thursday. Last week’s release pointed to a sharp drop, as the key employment indicator bounced back nicely following two disappointing releases. With the Federal Reserve poised to begin its long-awaited QE taper next month, employment releases have taken on added significance. If the US labor market continues to improve, the Fed could decide on another taper early in 2014, which would give a boost to the US dollar against its major rivals.

With all the bad news about Eurozone bailouts for struggling members, there was a happier episode as Ireland recently exited the bailout program it had received from the EU and the IMF. Ireland had been party to the bailout for three years, and will now be able to borrow money on the international markets. Key sectors such as tourism and agriculture are improving, and unemployment is down to about 12.5%. However, economic growth is expected to be limited, as the country was forced to undergo drastic budget cuts and tax increases as part of the bailout. Finance Minister Michael Noonan has said the exit from the bailout is a step in the right direction, but admits that the road to recovery will be a long one.

EUR/USD for Thursday, January 2, 2014

EUR/USD January 2 at 9:45 GMT

EUR/USD 1.3716 H: 1.3775 L: 1.3725

EUR/USD Technical

• EUR/USD has posted losses in Thursday trading. The pair touched a low of 1.3616 early in the European session.
• On the downside, 1.3649 continues to provide support. This is followed by a support line at 1.3585.
• On the upside, 1.3786 is the next line of resistance. This is followed by resistance at 1.3893, which is protecting the 1.39 line.
• Current range: 1.3649 to 1.3786

Further levels in both directions:

• Below: 1.3649, 1.3585, 1.3500 and 1.3410
• Above: 1.3786, 1.3893, 1.4000, 1.4140 and 1.4268

OANDA’s Open Positions Ratio

EUR/USD ratio is pointing to gains in long positions in Thursday trading. This is not consistent with what we are seeing from the pair, as the euro has lost ground against the dollar. The ratio is still made up largely of short positions, indicative of a trader bias towards the dollar continuing to move to higher ground.

The dollar has posted some gains in Thursday trading. We could see some further movement during the North American session, as the US releases key employment and manufacturing data later in the day.

EUR/USD Fundamentals

• 8:15 Spanish Manufacturing PMI. Estimate 49.9 points. Actual 50.8 points.
• 8:45 Italian Manufacturing PMI. Estimate 51.8 points. Actual 53.3 points.
• 9:00 Eurozone Final Manufacturing PMI. Estimate 52.7 points. Actual 52.7 points.
• 13:30 US Unemployment Claims. Estimate 334K.
• 14:00 US Final Manufacturing PMI. Estimate 54.4 points.
• 15:00 US ISM Manufacturing PMI. Estimate 56.8 points.
• 15:00 US Construction Spending. Estimate 0.7%.
• 15:00 US ISM Manufacturing Prices. Estimate 53.0 points.

*Key releases are highlighted in bold

*All release times are GMT

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