EUR/USD – Euro Takes a Tumble After Draghi Remarks

The euro had a rough day on Thursday, losing over one cent against the US dollar. EUR/USD is trading below the 1.29 line in Friday’s European session. The pair slid after dovish remarks by Mario Draghi at a press conference on Thursday. Speaking after the ECB policy meeting, which maintained the benchmark interest rate at 0.50%, Draghi reiterated that the ECB’s monetary policy would remain accommodative as long as needed. Taking a look at economic releases, there were just two releases in the Eurozone on Friday. French Trade Balance disappointed, dropping to a three-month low. German Factory Orders also looked weak, posting a second straight decline. Over in the US, the markets were closed on Thursday for the July 4th holiday, and are back in action on Friday, as the US releases the eagerly waited Non-Farm Payrolls as well as the Unemployment Rate.

Portugal finds itself gripped in a deep political crisis which could have repercussions for the Eurozone. The country entered into a bailout agreement back in 2011, worth EUR 78 billion. In order to qualify for the bailout funds, Portugal agreed to implement tough austerity measures. However, the economy has not bounced back as hoped, as Portugal been stuck in a recession for three years and unemployment is at a staggering 18%. Finance Minister Vitor Gaspar, who has been in charge of the austerity drive, shocked the markets by resigning on Monday, and the crisis has intensified with the resignation of the Portuguese foreign minister. The crisis has already had an economic impact. Stock markets in Europe have dropped, and the yield on Portuguese ten-year bonds has jumped, driving up the country’s borrowing costs. Portuguese Prime Minister Pedro Passos Coelho is putting on a brave face, saying that he is confident that the government will survive the crisis and there will not be early elections, as demanded by the opposition.

Spanish data has been a pleasant surprise this week. The week started with Spanish Manufacturing PMI rising to the 50-point level for the first time since in two years. Spanish Unemployment Change sparkled, dropping by 127.2 thousand. This easily beat the estimate of -83.5 thousand. The markets had expected a strong seasonal reading, but the release exceeded all expectations. There was more good news on Wednesday, as Spanish Services PMI showed a slight gain, and matched the estimate of 47.8 points. Further strong releases from Spain will be very welcome news and could boost the euro.

Has the Greek bailout hit a snag? Eurozone officials are displeased over the lack of progress by Athens in implementing the bailout conditions. The next installment of bailout funds amounts to some EUR 8.1 billion, but will require approval from Greece’s creditors – the ECB, EU and IMF. There is concern that Greece has been lagging behind in restructuring its public sector and enacting budget cuts. Greece has been given until the end of this week to assure its creditors that it is keeping its end of the bargain, or the next tranche of bailout funds could be withheld. Eurozone financial ministers meet on July 8, and the Greek bailout will be high on the agenda.

EUR/USD for Friday, July 5, 2013

EUR/USD 1.2877 H: 1.2906 L: 1.2870

EUR/USD Technical

EUR/USD is struggling after sustaining sharp losses on Thursday. The pair is facing resistance at 1.2943. This is followed by the significant line of 1.3000. On the downside, there is support at 12844. This line has weakened and could face pressure if the euro continues to slide. This is followed by a strong support level at 1.2751.

• Current range: 1.2844 to 1.2943

Further levels in both directions:

• Below: 1.2844, 1.2751 and 1.2696 and 1.2586
• Above: 1.2943, 1.3000, 1.3050, 1.3100, 1.3162 and 1.3271

OANDA’s Open Positions Ratio

The EUR/USD ratio has reversed directions on Friday, pointing to movement towards long positions. This is not consistent with what we are seeing from the pair, as the euro has edged lower on Friday. The ratio is now close to an even split between long and short positions, reflecting a lack of bias as to what we can expect from the pair.

EUR/USD is struggling after taking a hit on Thursday, and is trading in the high-1.28 range. We could see future volatility on Friday, as the US releases key employment numbers later today.

EUR/USD Fundamentals

• 6:45 French Trade Balance. Estimate -45.B. Actual -6.0B.
• 10:00 German Factory Orders. Estimate 1.3%. Actual -1..3%.
• 12:30 US Non-Farm Employment Change. Estimate 163K.
• 12:30 US Unemployment Rate. Estimate 7.5%.
• 12:30 US Average Hourly Earnings. Estimate 0.2%.

*Key releases are highlighted in bold

*All release times are GMT

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.