EUR/USD – Euro Slumps to Four-Month Lows

EUR/USD continues to lose ground on Friday, as the pair trades in the low-1.36 range in the European session. This is the euro’s lowest level since February, and the currency has lost close to 100 points this week against the US dollar. The news was not good on Thursday, as both the Eurozone and the US posted weak numbers. In the Eurozone, Manufacturing PMIs softened in April, while in the US, Unemployment Claims and Existing Houses both missed expectations. Taking a look at Friday’s releases, German Ifo Business Climate dipped to a five-month low, and Italian Retail Sales posted a second straight decline. In the US, the week wraps up with New Home Sales. The markets are anticipating a strong improvement for the April release.

US housing and employment releases disappointed on Thursday. Unemployment Claims has looked sharp over the past two releases, but the short streak came to an end, as the key employment indicator climbed to 326 thousand, up from 297 thousand a week earlier. This missed the estimate of 312 thousand. With future QE tapers by the Federal Reserve contingent on solid economic data, key employment releases such as Unemployment Claims will continue to be closely scrutinized by the markets. Thursday’s other major release, Existing Housing Sales, improved in April, rising to 4.65 million. However, this was short of the estimate, which stood at 4.71M. We’ll get a look at New Home Sales on Friday, with the markets looking for the indicator to rise sharply in April.

The Federal Reserve minutes were released on Wednesday, and there was no dramatic response from the markets. In the minutes, policymakers discussed an exit strategy from its QE stimulus program, which is set to terminate at the end of 2014. This will likely mean an increase in interest rates, but the minutes didn’t provide a timetable as to when rates might go up, and by how much. Low inflation levels means there is less pressure on the Fed to raise rates next year, but the economic conditions could change in the meantime. The Federal Reserve remains comfortable with its accommodative stance, and will want to see stronger growth and employment numbers before making changes to monetary policy, such as raising rates.

Eurozone, German and French Manufacturing PMIs softened in April, pointing to trouble in the manufacturing sector of the major Eurozone members. The French indicator dipped to 49.3 points, pointing to contraction. German and Eurozone data remained above the 50-point level, which points to expansion, but both fell short of expectations. ECB head Mario Draghi has said that the ECB could take monetary action at is June meeting depending on inflation and growth levels, and weak PMIs is one more reason why the ECB could well pull the trigger in June.

After climbing close to the key 1.40 level earlier in May, the euro slumped and headed for the hills after ECB president Mario Draghi stated he was prepared to take action in June to tackle low growth and weak inflation. The markets have heard tough talk (and no action) from Draghi before, but there is a feeling in the air that the June ECB meeting could be different. There is speculation that the ECB could cut the benchmark rate, which is currently at just 0.25%, or lower deposit rates, which are at 0%, into negative territory. As we get closer to the June meeting, we can expect some volatility from EUR/USD.

EUR/USD for Friday, May 23, 2014

EUR/USD May 23 at 9:30 GMT

EUR/USD 1.3618 H: 1.3653 L: 1.3616

EUR/USD Technical

• 1.3585 has reverted to a support role as the euro continues to point downwards. This is a weak line which could see action during the day. There is stronger support at 1.3487.
• 1.3649 is the next resistance line. 1.3786 is stronger.

Further levels in both directions:

• Below: 1.3585, 1.3487, 1.3346 and 1.3219
• Above: 1.3649, 1.3786, 1.3893, 1.4000 and 1.4149

OANDA’s Open Positions Ratio

EUR/USD ratio is pointing to gains in long positions in Friday trading. This is not consistent with the movement we are seeing from the pair, as the euro continues to lose ground. The ratio has a majority of long positions, indicative of a trader bias towards the euro moving higher.

EUR/USD has dropped to the low-1.36 range on Friday. The dollar is under pressure in the European session.

EUR/USD Fundamentals

• 6:00 German Final GDP. Estimate 0.8%. Actual 0.8%.
• 8:00 German Ifo Business Climate. Estimate 111.0 points. Actual 110.4 points.
• 8:00 Italian Retail Sales. Estimate 0.3%. Actual -0.2%.
• Day 2 European Parliamentary Elections.
• 13:00 Belgian NBB Business Climate. Estimate -4.7 points.
• 14:00 US New Home Sales. Estimate 426K.

*Key releases are highlighted in bold

*All release times are GMT

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