EUR/USD – Euro Sets Sights on 1.15, Euro PMIs Meet Expectations

EUR/USD is quiet on Monday, after posting excellent gains on Friday. The pair is trading at 1.1480 in the European session. On the release front, German and Eurozone Manufacturing PMIs both showed slight expansion. In the US, today’s highlight is ISM Manufacturing PMI. The estimate stands at 51.6 points.

The week started off on a positive note, as the April German and Eurozone Manufacturing PMIs both pointed to slight growth in the manufacturing sector. German Manufacturing PMI climbed to 51.8 points, close to the forecast of 51.9 points. The Eurozone release was almost unchanged at 51.7 points, beating the estimate of 51.5 points. German key releases were soft last week, raising concerns about the strength of Europe’s largest economy. Preliminary CPI came in at -0.2%, its first decline in four months. Retail Sales disappointed, posting a sharp decline of 1.1%. The markets had expected a gain of 0.3%.

The ECB’s battle with inflation shows no signs of abating, as the threat of deflation remains a major headache for Mario Draghi & Co. The ECB has lowered interest rates to zero and expanded its asset purchase program, but inflation refuses to move higher. In April, Eurozone CPI declined 0.2%, weaker than the estimate of -0.1%. This marked a third straight decline in consumer inflation, and analysts expect that Draghi will have to take further steps to extricate the Eurozone from the threat of deflation. The ECB wants to see inflation close to 2.0%, but clearly that target will not be achieved anytime soon. Despite the dismal inflation numbers, the economy continues to expand. Eurozone GDP grew by 0.6% in the first quarter, compared to a 0.3% gain in the fourth quarter of 2015. The French and Spanish economies grew 0.5% and 0.8% respectively in the first quarter, and Germany will release its GDP report next week.

US GDP for the first quarter rose 0.5%, shy of the estimate of 0.7%. This was considerably lower than the 1.4% gain in the fourth quarter of 2015, and marked the weakest quarter of growth in two years. Although economic growth remains moderate, the lukewarm reading will not help the cause of Fed policymakers who favor a rate hike, especially with inflation at low levels. The markets, which were not expecting an April hike, are keeping a close eye on key numbers, looking for clues as to whether the Fed will make a move at its June policy meeting. The April policy statement sounded cautiously optimistic about the US economy, but did not provide any clues about a hike in June.

One sore spot in the US economy remains the manufacturing sector. Last week, Core Durable Goods dropped 0.2%, well off the estimate of a 0.6% gain. This marked the fourth decline in five months. Durable Goods Orders was stronger at 0.8%, but also missed expectations, as the estimate stood at 1.9%. Recent manufacturing reports, such as the Philly Fed Mfg. Index have also been soft, as the industry has been hard-hit by weak global demand and a downturn in the US oil industry due to low crude prices. We’ll get a look at the ISM Manufacturing Index later on Monday.

EUR/USD Fundamentals

Monday (May 2)

• 7:15 Spanish Manufacturing PMI. Estimate 53.0. Actual 53.5
• 7:45 Italian Manufacturing PMI. Estimate 54.1. Actual 53.9 
• 7:50 French Final Manufacturing PMI. Estimate 48.3. Actual 48.0
• 7:55 German Final Manufacturing PMI. Estimate 51.9. Actual 51.8
• 8:00 Eurozone Final Manufacturing PMI. Estimate 51.5. Actual 51.7
• 9:30 German Buba President Jens Weidmann Speaks
• 13:45 US Final Manufacturing PMI. Estimate 51.0
• 14:00 ECB President Mario Draghi Speaks
• 14:00 ISM Manufacturing PMI. Estimate 51.6 points
• 14:00 US Construction Spending. Estimate 0.5%
• 14:00 ISM Manufacturing Prices. Estimate 51.0
• Tentative – US Loan Officer Survey

*Key events are in bold

*All release times are GMT

EUR/USD for Monday, May 2, 2016

EUR/USD May 2 at 9:20 GMT

Open: 1.1460 Low: 1.1447 High: 1.1483 Close: 1.1479

EUR/USD Technical

• EUR/USD has shown limited movement in the Asian and European sessions
• 1.1378 is providing support
• 1.1495 is a weak resistance line

Further levels in both directions:

• Below: 1.1378, 1.1278, 1.1172 and 1.1087
• Above: 1.1495, 1.1609 and 1.1711
• Current range: 1.1378 to 1.1495

OANDA’s Open Positions Ratio

EUR/USD ratio shows short positions with a strong majority (68%). This is indicative of strong trader bias towards EUR/USD breaking out and moving 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.