After a quiet start to the trading week, we’re seeing plenty of activity from EUR/USD. The euro continues to move up, and is testing the important 1.30 level in Thursday’s European session. In economic news the day began on a positive note as Eurozone Retail PMI climbed to an eight-month high. Later today, Italy releases the results of its 10-year bond auction. In the US, it’s a busy day with three key releases – Preliminary GDP, Unemployment Claims and Pending Home Sales.
In Germany, we continue to see mixed data this week. German employment numbers were a big disappointment, as Unemployment Change rose to 21 thousand, well above the estimate of 4 thousand. This was the highest reading since June 2008. There was better news from Preliminary CPI, which rebounded from a decline and posted a 0.4% gain, beating the forecast of 0.2%. Which direction is the German economy headed? The Eurozone will find it more than difficult to recover without Germany, the Eurozone’s largest economy, leading the way. The markets are hoping to wrap up the trading week on a positive note, as Germany releases Retail Sales on Friday.
Will the ECB implement negative interest rates? Recently, ECB Mario Draghi and other policymakers have expressed a willingness to consider the idea. At present, the ECB’s deposit rate stands at zero. If the ECB does opt to lower rates, it would be the first major central bank to adopt negative interest rates. On Monday, ECB Executive Board member Joerg Asmussen said that the ECB will continue its expansive monetary policy in order to boost the Eurozone economy, but urged caution on the question of negative rates. Asmussen warned that the ECB can’t simply fix uncompetitive economies by changing its monetary policy, such as the adopting negative interest rates. A move in this direction would likely hurt the euro, as investors would move funds out of the Eurozone in search of better rates of return.
In the US, the Federal Reserve hasn’t made any changes to the current round of quantitative easing, which stands at $85 billion in asset purchases each month. Fed policymakers, including Fed Chair Bernanke, have not been shy about dropping clues that QE could be altered or even terminated in the next few months. The currency markets have reacted sharply to such talk, and much of the volatility we are seeing in the currency markets is a reflection of market uncertainty as to what the Fed plans to do. Talk of an end to QE has given a boost to the dollar, and we can expect the currency markets to continue to be very sensitive to further talk of tapering QE.
EUR/USD May 30 at 10:35 GMT
EUR/USD 1.2977 H: 1.3006 L: 1.2934
EUR/USD continues to push higher, and briefly pushed above the 1.30 level in the European session. This line is providing weak resistance and could see further activity. The next line of resistance is at 1.3050. On the downside, 1.2955 is providing support. This line could be tested if the dollar can rebound. There is stronger support at 1.2843.
- Current range: 1.2955 to 1.3000
- Below: 1.2955, 1.2843, 1.2753, 1.2689, 1.2589 and 1.2500
- Above: 1.3000, 1.3050, 1.31 and 1.3162
EUR/USD ratio has picked up where it left off on Tuesday, continuing to point to movement towards long positions. This is reflected in the current movement of the pair, as the euro is continuing to move higher.
EUR/USD is looking sharp, and has gained about 150 points since Wednesday. We can expect to see more activity from the pair during the day, as the US releases three key events.
EUR/USD Fundamentals
- 8:10 Eurozone Retail PMI. Actual 46.8 points.
- Tentative: Italian 10-year Bond Auction. Actual 4.14%
- 12:30 US Preliminary GDP. Estimate 2.5%.
- 12:30 US Unemployment Claims. Estimate 342K.
- 12:30 US Preliminary GDP Price Index. Estimate 1.2%.
- 14:00 US Pending Home Sales. Estimate 1.3%.
- 14:30 US Natural Gas Storage. Estimate 85B.
- 15:00 US Crude Oil Inventories. Estimate -0.8M.