EUR/USD Aug. 2 – Slides After Draghi’s Comments, Strong

The euro was down sharply on Thursday, losing close to one cent. EUR/USD has steadied on Friday, as the pair trades in the low-1.32 range. The euro  fell after ECB head  Mario Draghi  stated that interest rates would likely remain low for some time. In the US, Unemployment Claims and ISM Manufacturing PMI looked   very sharp. Taking a look at Friday’s releases, Spanish Unemployment Change posted another strong decrease, but fell short of the estimate.  In the US, the markets will get another close look at the  employment  picture, with the release of Non-Farm  Employment Change and the Unemployment Rate.  As well, FOMC member James Bullard will address a finance conference in Boston.

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

EUR/USD Technical

• Asian session: Euro/dollar  dropped below the 1.32 line but recovered. The pair touched a high of 1.3223 late in the session and consolidated at 1.3220. The  pair is unchanged  in the European session.

Current range: 1.3175 to 1.3255.

Further levels in both directions:    

• Below: 1.3175, 1.31, 1.3050, 1.30, 1.2940, 1.2890 and 1.2840, 1.28 and 1.2750.
• Above:    1.3255, 1.33, 1.3350, 1.34, and 1.3520.
• 1.3175  continues to  provide support. This is followed by 1.31.
• 1.3255  is providing weak resistance. The round number of 1.33 is next.

EUR/USD Fundamentals

• 7:00  Spanish Unemployment Change, exp. -80.0K, actual -64.9K.
• 9:00  Eurozone PPI, exp. 0.1%, actual  0.0%.
• 12:30 US Non-Farm Employment Change, exp. 184K.
• 12:30 US Unemployment Rate, exp. 7.5%.
• 12:30 US Average Hourly Earnings, exp. 0.2%.
• 12:30 US Core PCE Price Index, exp. 0.1%.
• 12:30 US Personal Income, exp. 0.5%.
• 12:30 US Personal Spending, exp. 0.5%.
• 14:00 US Factory Orders, exp. 2.3%.
• 16:15 US FOMC Member James Bullard Speaks.

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

EUR/USD Sentiment

• Euro drops after Draghi’s dovish comments: As expected, the ECB maintained rates at the record low level of 0.50%. It was the follow-up press conference with ECB head Mario Draghi which shook up the markets and sent the euro tumbling. Draghi  was quite clear about the ECB’s  monetary policy for the near future, stating  that the  ECB will  maintain an accommodative policy “for an extended period of time.” The  market’s reaction to Draghi’s  remarks that rates  will stay low or could even drop was predictable, as the euro dropped sharply. Draghi also noted that  Euro-zone growth risks remain on the downside and this added to the pressure on the euro.
• Fed maintains QE, keeps mum on tapering: The US Federal Reserve released a policy statement on Wednesday, but there wasn’t any dramatic news out of Washington. The Fed stated that it would continue with the present level of QE, namely $85 billion in asset purchases each month, and gave no indication about when it might taper QE. The Fed could take action in September, and the speculation and uncertainty will likely cause volatility so long as the Fed keeps the markets in the dark about its plans. The Federal Reserve also added that  the US economy was growing at  a “modest” pace and voiced some concern about a rise in inflation.
• Italian, Eurozone PMIs climb above 50: Manufacturing PMIs were released on Thursday, and the  results were mixed. Italian Manufacturing PMI pushed above  the 50 level for  the first time in two years,  rising from 49.1 to 50.4 points. The 50  threshold separates between contraction and expansion.    It was an almost identical story with  Eurozone Final Manufacturing PMI, which jumped  from 48.8 to 50.3 points. This was its first  reading above 50 since August 2011. Spanish Manufacturing PMI couldn’t keep pace, and dropped from 50.0 to 49.8 points.
• Employment picture improves in Spain and Italy: Spanish Employment Change continues to improve, posting a solid decrease of -64.9 thousand. However, the markets were expecting an even stronger number, with an estimate of -80.oK. Elsewhere, the unemployment rate in the Eurozone remained at 12.1%, which was a notch better than the estimate of 12.2%. In Italy, the unemployment rate edged lower, from 12.2% to 12.1%. These numbers won’t make headlines, but may point to a stabilizing of the employment picture in the Eurozone. While these figures are welcome news, employment numbers will have to show dramatic improvement if the Eurozone is to get back on the road to recovery.
• German numbers show improvement: The markets have been busy analyzing this week’s German releases, and the news is mostly positive. GfK Consumer  Climate hit 7.0 points, a multi-year high,  while Preliminary CPI posted a nice gain of 0.5%. Unemployment Change looked sharp, dropping by 7 thousand.  This easily beat the  estimate of  -1 thousand. The fly in the ointment was Retail Sales, which  declined by  1.5%, its worst showing since January. With general elections in Germany  scheduled for  September, every economic release has added significance and will be under the microscope as the election campaign heats up.