EUR/USD fell down below 1.34 and is now at the low range that characterized its trading during the previous week. Slightly weaker than expected PMIs in the old continent came out at the time of the drop, but the loss is more related to a re-emergence of fears towards the ECB meeting. Will the pair break to even lower ground? It depends on today’s important release in the US.
Here is a quick update on what’s moving the pair.
- EUR/USD stabilized above 1.3415.
- Current range: 1.3325 to 1.3400.
Further levels in both directions:
- Below: 1.3365, 1.3325, 1.3295 and 1.32.
- Above: 1.34, 1.3450, 1.35, 1.3550, 1.3585, 1.3610, 1.3650 and 1.3677.
- 1.34 returns to its role as support. The new low of 1.3365 follows.
- 1.3450 is strong resistance.
EUR/USD Fundamentals
- 7:15 Spanish Services PMI. Exp. 55.1, actual 56.2 points.
- 7:45 Italian Services PMI. Exp. 53.2, actual 52.8 points.
- 8:00 Euro-zone services PMI. Exp. 54.4, actual 54.2 points.
- 9:00 Euro-zone retail sales. Exp. +0.4%, actual +0.4%.
- 13:45 US Markit Services PMI. Exp. 61 points.
- 14:00 US ISM Non-Manufacturing PMI. Exp. 56.6 points. See how to trade the figure with EUR/USD.
- 14:00 US Factory orders. Exp. +0.6%.
- 14:00 US IBD/TIPP Economic Optimism. Exp. 46.2 points.
*All times are GMT.
For more events and lines, see the Euro to dollar forecast.
EUR/USD Sentiment
- Fear returns: While the situation in Portugal’s BES was quickly contained and poses no systemic risk, it goes to show that things can pop out of the blue and get out of control very quickly. This casts a doubt on how much the ECB’s stress tests can be reliable and prevent a crash.
- German economy is slowing, but wages are on the rise: After a strong growth rate of 0.8% in Q1, the German economy likely grew at a slow pace in Q2. All the signs point to this. However, the euro-zone locomotive enjoys a strong job market that already triggers calls for wage hikes, even from the Bundesbank. Such a rise would push euro-zone core inflation higher.
- Low inflation puts pressure on the ECB: Inflation in the euro-zone scratches the bottom, with 0.4% y/y in July. Core inflation is at 0.8%. Despite a weaker euro, prices are not rising in the euro-zone. Will Draghi respond to this? The wide measures introduced in June are still fresh, so action is unlikely, but Draghi could certainly try to talk down the euro.
- US economy surges in Q2, employment is only OK: GDP soared in Q2, expanding at an annual rate of 4.0%. Together with a revision to Q1, the US is much closer to reaching solid growth in 2014. However, the momentum in the job market isn’t keeping up in July: the economy gained “only” 209K jobs. While the average of the past months is strong, the miss of expectations allowed for profit taking on the dollar’s earlier gains. Today’s ISM Non-Manufacturing PMI usually serves as a pre-NFP hint. Nevertheless, the employment component will be watched, and so will the prices.
- Important US inflation numbers remain subdued: Both the Fed favorite Core PCE Price Index as well as Average Hourly Earnings remained low, indicating the Americans don’t have too much money in the their pockets so raising rates to curb demand is not that urgent. The latest FOMC statement did acknowledge that inflation could be closer to target, but expressed concern about the “underutilized” job market.
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