EUR/USD April 3 – Under Pressure as Eurozone Numbers

EUR/USD  is under pressure in Wednesday trading, as the pair is struggling to stay above the 1.28 level. The euro has lost ground after  weak employment and manufacturing data out of the Eurozone on Tuesday. Wednesday  sees only on  release out of the Eurozone. Meanwhile, the markets remain cautious ahead of the ECB policy meeting on Thursday.  In the US, there are two major releases today –  ADP Non-Farm Employment Change and the  ISM Non-Manufacturing PMI.

Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar.

EUR/USD Technical

• Asian session: Euro/dollar  dipped below the 1.28 level  and consolidated at 1.2791. The pair  has crossed back above  1.28  in the European session.
• Current range: 1.2805 to 1.2880

Further levels in both directions:  

• Below: 1.2805, 1.2746, 1.27, 1.2660 and 1.2587.
• Above:   1.2880, 1.2960, 1.3000, 1.3100, 1.3130 and 1.3170.
• 1.2805 is  under pressure  on  the downside. 1.2746 is stronger.
• 1.2880 is the next resistance line. It has strengthened as the pair trades close to 1.28.

Euro testing 1.28 line- click on the graph to enlarge.

EUR/USD Fundamentals

• 9:00: Eurozone CPI Flash Estimate. Exp. 1.6%.
• 12:15 US ADP Non-Farm Employment Change. Exp. 203K.
• 14:00 US ISM Non-Manufacturing PMI. Exp. 55.9 points.   See how to trade this event with USD/JPY.
• 14:30 US Crude Oil Inventories. Exp. 1.8M.
• 21:00 US FOMC Member  James Bullard Speaks.

For more events and lines, see the Euro to dollar forecast

EUR/USD Sentiment

• Cyprus – details about the haircut: The bailout agreement may have been signed, but the drama and uncertainty continue. Capital controls are still in place in Cyprus, as the government remains fearful of a run on the banks.  Over the weekend, authorities revealed the plan for taxing around 60% of the money on big accounts (above 100K) in the Bank of Cyprus. This steep tax is expected to have a strong negative impact on the country’s business sector, and the government has admitted that the country is in recession. In order to help the slumping economy, Cyprus plans to lift a ban on casinos and provide tax exemptions on business profits that are reinvested on the island. President Nicos Anastasiades has acknowledged that the bailout agreement is painful for Cypriots, but said that failure to reach a deal would have resulted in the collapse of the banking sector and could have led to an exit from the Eurozone.
• Weak Eurozone numbers continue:  There has been talk of the Eurozone economy improving sometime in 2013, but so far this  year,  the economy has not shown much in the way of a recovery. This was underscored by disappointing data on Tuesday.  PMI numbers out of Spain and Italy continue to point to contraction in the services and manufacturing sectors.  The  Unemployment Rate in the Eurozone  edged up to a new record of 12.0%. The euro  has responded by losing ground, and will likely  dip further is we don’t see better numbers out of the Eurozone.
• Markets Eye ECB Policy Meeting: The ECB will hold a policy meeting on Thursday, the first since the Cyprus bailout crisis sent shock waves through the markets worldwide. The ECB is expected to maintain the current benchmark rate of 0.75%, but what will be of more interest to the markets are remarks by ECB head Mario Draghi following the rate announcement. Draghi will likely address the bailout issue and try to  calm jittery markets.
• Italy turns to “Ten Wise Men”: After coalition talks failed, the president reportedly considered resigning in order to accelerate the path to fresh elections. However, and perhaps due to pressure from ECB president Mario Draghi, president Napolitano instead appointed a panel of 10 experts, including  politicians and a member of the country’s central bank, in  order to try and find another political solution. The Italian media has playfully dubbed the panel the “Ten Wise Men”. All humor aside, these “wise men” will have their hands full trying to untie the Gordian knot of the inconclusive election results, which has left the Eurozone’s third largest economy in a deep political crisis. Also Italy’s small neighbor, Slovenia, has some issues. Here is some background about Slovenia.
• US data points downward: Last week saw a host of dismal US releases, as manufacturing, housing, consumer confidence and employment figures were all weak. The month of April did not start on the right foot, as the ISM Manufacturing PMI dropped sharply from 54.2 points to 51.3 points, and was well below the estimate of 54.2 points. If the week continues in a downward trend, we will likely see a negative reaction from the markets. The major events for this week include: ISM Non-Manufacturing PMI, ADP and the Non-Farm Payrolls.