EUR/USD – Drops Sharply After Weak German PMIs

The quiet start to the week ended abruptly on Tuesday, as  EUR/USD  tumbled following weak German releases. The pair has dipped below the 1.30 line in the European session. German manufacturing and service PMIs both were well below the estimates. French and Eurozone PMIs, however, were within market expectations. In the US, today’s highlight is New Home Sales. The markets will be hoping for an improvement after Existing Home Sales looked weak on Monday.

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

EUR/USD Technical

• Asian session: Euro/dollar  lost ground,  dropping  to a low  of 1.3032, before consolidating at 1.3042.  The pair then dropped sharply in the European session, falling below the 1.30 line.
• Current range: 1.3000 to 1.3050.

Further levels in both directions:  

• Below: 1.2960, 1.2880, 1.2805, 1.2750 and 1.27.
• Above: 1.30, 1.3050, 1.31, 1.3140, 1.3170, 1.3255, 1.3290, 1.3350 and 1.34.
• 1.3000 is a weak resistance line. This is followed by 1.3050.
• 1.2960 is providing weak support. 1.2880 is stronger.

Euro  drops below 1.30  on weak German data  – click on the graph to enlarge.

EUR/USD Fundamentals

• 7:00 French Flash Manufacturing PMI. Exp. 44.2 points. Actual 44.4 points.
• 7:00 French Flash  Services PMI. Exp. 42.3 points. Actual 44.1 points.
• 7:30  German Flash Manufacturing PMI. Exp. 49.0 points. Actual 47.9 points.
• 7:30    German Flash  Services PMI. Exp.  51.1 points. Actual 49.2 points.
• 8:00  Eurozone Flash Manufacturing PMI. Exp. 46.8 points. Actual 46.5 points.
• 8:00  Eurozone Flash  Services PMI. Exp.  46.7 points. Actual 46.6 points.
• 8:52: Spanish HPI. Actual 0.8%
• 13:00 US Flash Manufacturing PMI. Exp. 53.8 points.
• 13:00 US HPI. Exp. 0.7%.
• 14:00 US  New Home Sales. Exp. 416K.
• 14:00 US Richmond Manufacturing Index. Exp. 3 points.

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

EUR/USD Sentiment

• Euro down after weak German PMIs: The euro took it on the chin on Tuesday, dropping sharply as German PMIs looked bad. Manufacturing PMI dropped from 48.9 points to 47.9 points, a four-month low. It was well short of the estimate of 49.0 points. Services PMI fared even worse, falling from 51.6 points to 49. 2 points. This was  well short of the estimate of 51.1 points, and the first reading below 50 since last November. A reading lower than 50 signals contraction, and the negative market reaction has taken its toll on the euro.
• IMF pessimistic about Eurozone: Last week, the IMF released its World Economic Outlook on global growth, and had bad news for the Eurozone. The  report  found that  the Eurozone is the weakest part of the global economy,  and  forecast contraction in GDP this year for  Italy, France and  Spain.  The report downgraded German growth from  0.9% in January to 0.6%.  The IMF urged the ECB to lower interest rates in order to stimulate the stagnant Eurozone economy. Chief Economist Olivier Blanchard did not mince words about the dire situation in Europe, stating that “the slump in the Eurozone is worrisome”.
• US numbers continue to point downward: What’s wrong with the US? The country’s economic releases continue to disappoint the  markets, as  last  week’s key releases fell below expectations. Thursday brought more bad news, as employment and manufacturing numbers missed the mark. Unemployment Claims came in at 352 thousand, higher than the estimate of 349 thousand. The Philly Fed Manufacturing Index dropped from 2.0 points to 1.3 points,  nowhere near  the  estimate of 2.7 points. This week started no better, as Existing Home Sales came in at 492 million, well off the estimate of 5.02 million. The markets are hoping that Tuesday’s housing numbers can do better.
• Italy’s president reelected:  The Italian political  impasse continues but  there were dramatic developments in Italy over the weekend. President Giorgio Napolitano, who was supposed to be replaced, was reelected to a new 7 year term. As well, the leader of the center-left PD party, Pier Luigi Bersani, resigned. Napolitano will be tasked with trying to break the logjam and shepherd the parties put a coalition together. If he fails, the country may  be forced to  return to the polls. Fresh elections would mean more uncertainty and would weigh on the euro.
• G20 Meeting Goes Soft on Japan:  There was little surprise that the  G20 did not take Japan to task over its monetary policies, which have resulted in the yen taking a tumble. Although Japan has faced a lot of criticism leveled against Japan, the G20  issued  a very soft statement about  currency  devaluation  which  made no  mention  Japan, apparently giving it  a green light to continue its aggressive easing measures.  Japanese Finance Minister Taro Aso stated that the measures are aimed at stamping out deflation, and the yen’s plunge is a “byproduct”. The bottom line?  The BOJ will continue  its easing steps, and we can expect  the yen to continue to weaken, which will  likely impact on EUR/USD.