EUR/USD – Euro Rallies on Weak US Data

EUR/USD continues to climb, and is trading at the 1.12 line in Friday’s European session. On the release front, German manufacturing numbers missed expectations. In the US, there are two key events – Nonfarm Payrolls and Average Hourly Earnings. Traders should be prepared for possible volatility from the pair during the North American session.

German manufacturing numbers have stabilized in recent months, as Factory Orders recorded back-to-back gains. However, the January report posted a decline of 0.7%, short of the estimate of -0.3%. The slowdown in China, the world’s second largest economy, has produced strong ripples across the globe, and weak global demand has taken its toll on the Eurozone manufacturing sector. We’ll get another look at German manufacturing data on Monday, with the release of Industrial Production. The indicator recorded a decline in the November report, and another soft reading could weigh on the high-flying euro.

The euro has put together an outstanding rally to kick off February, climbing close to 400 points this week. EUR/USD is currently trading at the 1.12 line, close to 3-month highs. Eurozone numbers have not been particularly impressive, but the euro has taken full advantage of weak US numbers, notably employment data, which has led to a greenback selloff for much of the week. On Wednesday, ADP Nonfarm Payrolls dropped to 205 thousand in January, much weaker than 257 thousand a month earlier. There was no relief from ISM Non-Manufacturing PMI, a key gauge of the services sector. The index dipped to 53.2 points in January, its worst showing since March 2014. Unemployment claims rose unexpectedly to 285 thousand, above the forecast of 279 thousand. The week wraps up with Nonfarm Payrolls, a crucial indicator which can have a strong impact on the currency markets. The forecast is for a sharp drop in the January report, and if this occurs, we could see the euro rally continue on Friday.

EUR/USD Fundamentals

Friday (Feb. 5)

• 2:00 German Factory Orders. Estimate -0.3%. Actual -0.7%
• 2:45 French Trade Balance. Estimate -4.5B. Actual -3.9B
• 8:30 US Average Hourly Earnings. Estimate 0.3%
• 8:30 US Nonfarm Employment Rate. Estimate 5.0%
• 8:30 US Trade Balance. Estimate -42.9B
• 15:00 US Consumer Credit. Estimate 16.1B

*Key events are in bold

*All release times are EST

EUR/USD for Friday, February 5, 2016

EUR/USD February 5 at 6:00 EST

Open: 1.1199 Low: 1.1182 High: 1.1217 Close: 1.1191

EUR/USD Technical

• EUR/USD is almost unchanged in the European and Asian sessions
• The pair broke through resistance at 1.1172 on Thursday. This line is now providing weak support
• There is resistance at 1.1278
• Current range: 1.1172 to 1.1278

Further levels in both directions:

• Below:1.1172,  1.1087, 1.0941 and 1.0847
• Above: 1.1278, 1.1349 and 1.1495

OANDA’s Open Positions Ratio

EUR/USD has shown little movement this week, despite sharp gains by the pair on Wednesday. Short positions retain a strong majority of positions (62%). This points to trader bias towards the euro reversing directions and heading lower.

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.