EUR/USD Feb. 20 – Weak PMIs Weigh On Euro

EUR/USD  has posted modest losses in Thursday trade. In the  European session, the pair is trading  just shy of  the 1.37 line.  It’s a very  busy day on both sides of the pond. There wasn’t much to cheer about in the Eurozone, as PMIs were mostly weak, and German and  French inflation indicators posted declines. In the US,  there are three key events on the schedule – Core CPI, Unemployment Claims and the Philly Fed Manufacturing Index.

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

EUR/USD Technical

• EUR/USD  lost ground late in the  Asian session,  dipping just below the 1.37 at the end of the session. The pair is unchanged in  the European session.

Current range: 1.3650 to 1.37

Further levels in both directions:  

• Below: 1.3650, 1.3580, 1.3515, 1.3450, 1.34, 1.3320, 1.3295, 1.3175, 1.31 and 1.3050.
• Above: 1.37, 1.38, 13915 and 1.40.
• 1.3650 is  providing support. 1.3580 follows.
• On the upside, 1.37 is under strong pressure. 1.38 is stronger.

EUR/USD Fundamentals

• 7:00 German PPI. Exp. +0.3%, Actual -0.1%.
• 7:45  French CPI. Exp. -0.3%, Actual -0.6%.
• 8:00 French Flash Manufacturing PMI. Exp. 49.6, Actual 48.5 points.
• 8:00 French Flash  Services PMI. Exp. 49.5, Actual 46.9 points.
• 8:30  German Flash Manufacturing PMI. Exp. 56.4, Actual 54.7 points.
• 8:30  German Flash  Services PMI. Exp. 53.4, Actual 55.4 points.
• 9:00  Eurozone Flash  Manufacturing PMI. Exp. 54.2, Actual 53.0 points.
• 9:00  Eurozone Flash  Services PMI. Exp. 51.9, Actual 51.7 points.
• 9:42 Spanish 10-year Bond Auction. Actual 3.56%.
• 13:30 US Core CPI. Exp. 0.1%.
• 13:30 US Unemployment Claims. Exp. 335K.
• 13:30 US CPI. Exp. 0.1%.
• 14:00 US Flash Manufacturing PMI. Exp. 53.6 points.
• 15:00 Eurozone Consumer Confidence. Exp. -11 points.
• 15:00 US Philly Fed Manufacturing Index. Exp. 9.2 points.
• 15:00 US Flash Mortgage Delinquencies.
• 15:00 US CB Leading Index. Exp. 0.5%.
• 15:30 US Natural Gas Storage. Exp. -255B.
• 16:00 US Crude Oil Inventories. Exp. 2.1M.

*All times are GMT

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

EUR/USD Sentiment

• Euro PMIs disappoint:  PMIs  out of the Eurozone  were  mostly weak in January.   French Service and Manufacturing PMIs remain in contraction mode, while the Eurozone numbers fell short of their estimates. German numbers were mixed, as Manufacturing PMI was well short of the estimate,  while Services PMI  managed to beat the forecast. These  weak figures from the Eurozone’s two largest  economies do not bode well  for  the Eurozone and the euro responded with  modest losses.
• US slide continues: It hasn’t been a very good week for US releases up till now. Building Permits dipped to 0.94 million, its lowest level in five months. The indicator fell short of the estimate of 0.98 million. The Producer Price Index dropped to 0.2%, down from 0.4% a month earlier. Although the index did match the forecast, we continue to see weak inflation numbers, indicative of an underperforming economy.   On Tuesday, the culprit was the Empire State Manufacturing Index. The important manufacturing  indicator slid to 4.5 points in January, down sharply from 12.5 a month earlier.      Meanwhile, the hiccups continue on the employment front, as Unemployment Claims were higher than expected last week. If the markets don’t see some solid numbers on Thursday, the euro could gain more ground.
• Fed unlikely to raise rates: According to Federal Reserve minutes, we’re unlikely to see  interest rates go up  if unemployment drops to 6.5%. Previously, the Fed had said they would consider  raising rates at the 6.5% threshold, but with unemployment falling faster than expected,  Fed policymakers agreed  that it would “soon  be appropriate” to revise the Fed’s forward guidance regarding interest rate levels.  The minutes also show  that the Fed will likely continue  trimming QE,  barring any downturns in the economy.
• Economic Sentiment releases disappoint: Confidence in the outlooks for the German and Eurozone  economies weakened in January. German ZEW Economic Sentiment slid to a three-month low, dropping to 55.7 points in January, compared to 61.7 a month earlier. The estimate stood at 61.3. The Eurozone reading followed suit, dropping from 73.3 to 68.5 points, way off the estimate of 73.9. Although these levels are relatively high, the fact that institutional investors  and analysts are less optimistic is a reason for concern, and a slowing down of the German locomotive is the last thing the troubled Eurozone needs.
• ECB official hints at negative rates: The head of the Eurogroup, Dutch finance minister Joeren Dijsselbloem, said that that some say the value is too strong. His words join  an ECB member that stated that the central bank is considering negative rates very seriously. These words weighed on the euro, which has since recovered. In addition, the Bank’s monthly bulletin cut inflation forecasts from 1.5% to 1.1% in 2014. ECB President Draghi seemed confident that things will sort themselves out, but  another fall in inflation could still trigger a move in March.
• Greek debt relief discussion to be postponed: The Eurogroup is expected to decide on sending the troika delegation to Greece once again, to try and resolve the financing gap. However, a decision about new debt relief will await for late April. In the meantime, Greek PM Samaras stated that his country reached a primary surplus (balance without debt payments) of 1.5 billion euros in 2013. The Eurogroup meeting might result in quite a few headlines.

More:  Analysis: ECB expects the situation to sort itself out, but things could still worsen