EUR/USD Aug. 7 – Steady Ahead of ECB Statement

EUR/USD  is steady on Thursday, as the pair  continues to trade  close to nine-month lows.  Late in  the European session,  the pair is trading in the mid-1.33 range. Today’s  major event  is the ECB rate statement, with the ECB expected to maintain rates at their current level of 0.15%. Elsewhere, German  Industrial Production posted a  small gain of 0.3%, well  below expectations. In the US, the day’s  highlight is Unemployment Claims.  The markets are  expecting a similar reading to the previous  release.

 Here is a quick update on what’s moving the pair.

• EUR/USD  has showed little movement in the Asian or European sessions.
• Current range:  1.3325 to 1.3400.

Further levels in both directions:

• Below: 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.
• 1.3325  remains an immediate  support line. 1.3295 is next.
• On the upside, 1.34 is under strong pressure. Will the pair break above this key level? 1.3450 follows.

EUR/USD Fundamentals

• 6:00 German Industrial Production. Estimate 1.4%. Actual 0.3%.
• 6:45 French Trade Balance. Estimate -5.0B. Actual -5.4B.
• 8:40 Spanish 10-year Bond Auction. Estimate 2.69%.
• 11:45 ECB Minimum Bid Rate. Estimate 0.15%.
• 12:30 ECB Press Conference.
• 12:30 US Unemployment Claims. Estimate 305K.
• 14:30 US Natural Gas Storage. Estimate 89B.
• 19:00 US Consumer Credit. Estimate 18.3B.

*All times are GMT.

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

EUR/USD Sentiment

• ECB under pressure as Eurozone sputters: The ECB will be in the spotlight later on Thursday, but the markets are not expecting any dramatic announcements. In June, the ECB cut rates to a record low of 0.15% in order to boost growth and stave off deflation. However, inflation levels have not risen, and continuing tension with Russia over Ukraine has had a negative impact on growth. German numbers have softened and Italy is officially in recession, having posted a decline in GDP for two consecutive quarters. This leaves ECB President Mario Draghi in a difficult position, with few tools in  his arsenal to boost the  struggling Eurozone economy.
• German  manufacturing numbers soften: German data continues to point to trouble in the Eurozone’s largest economy. Industrial Production posted a gain of 0.3%, but this was  nowhere close to the forecast of 1.4%. On Tuesday, Factory Production declined by 3.2%, the steepest drop since October 2012. The  Bundesbank is blaming tensions with Russia and  stronger EU sanctions against  Moscow  for the weak economic numbers, as Germany is Russia’s  number one  trading partner in Europe.  With key indicators pointing downward and  confidence in the German economy  ebbing,  we could see a decline in GDP in  the second quarter, which could  have a chilling effect on  the shaky euro.
• US Services PMI jumps: On Tuesday, ISM Non-manufacturing PMI looked sharp, rising to 58.7 points last month. This easily beat the estimate of 56.6, and was the index’s best showing since February 2011. This follows a strong Manufacturing PMI reading  last week, with the index climbing to 57.1 points, a three-year high.  There was more positive news on Tuesday, as Factory Orders had an impressive July, gaining 1.1%. These solid numbers point to healthy expansion in the US manufacturing and services sectors, helping the US dollar post inroads against the euro.
• 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 to even lower levels.
• US inflation  levels 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.

More:  the latest podcast, discussing the ECB: